By Krishna Jha
The recent trend of growth in trade and economic exchange between India and China is a welcome development, particularly in the context of the deepening Hormuz Crisis consequent upon the US imperialist aggression against Iran and its bullying tactics against other countries. The US began arm-twisting others, particularly the weaker nations, using the tariff tools, aiming to shift its own economic crisis on to others in what has come to be known as the ‘Great Tariff Wars’.
But it failed completely to ‘protect’ its internal market and production, as the nations refused to be cowed down. Therefore, it has resorted to its traditional colonial-imperialist method of open armed ‘interventions’ or aggression, the latest being the attempts by it to block Hormuz to the detriment of it.
The US hoped to crush Iran in a matter of days but the opposite happened. Not only since Vietnam war, the country has been standing up so boldly against the US, and always giving it a fitting reply and dismantling its plans. Going wild, the US is running out to pressurize now India, now China and other countries into joining him.
A new geopolitical reality has emerged, in which we find a realignment of regional and world forces. Countries like India, Russia, China and others are trying to find ways to contain and minimize damage to their economies through mutual exchange and cooperation to neutralize the US pressures.
The Hormuz Crisis has brought India and china, as also Russia, nearer, a process already in operation but accelerated in the crisis. India needs capital flows now more than ever. It is a time when the FDI, FPI and FIIs are in flight from here. The foreign investors continue to withdraw at an alarming rate. They have withdrawn Rs 33000 crores in May this year. This year, the total FPI (foreign portfolio investments) outflows from the equity markets have reached nearly Rs 2.3 lakh crore, contrasting with 1.7 lakh crore in 2025.
The reasons are many: weak earnings growth, sharp fall in rupee rate, far less opportunities than elsewhere. Tax is levied on rupee gains, not on dollar, leading to payment of taxes on even nominal rupee gains despite loss in terms of dollars.
Due to US pressures, India had followed a policy discouraging Chinese investment, with a number of restrictions and inspections. But there is a welcome change recently. India has partially liberalized PN3 or Press Note 3 earlier this year, removing or easing a number of restrictions on Chinese FDI. In the present scenario, Chinese FDI is badly needed. This should lead to higher capital inflows and lower trade deficit. China is no longer a global workshop absorbing world capital but is now a major investor.
India can benefit by easing regulations on foreign investment by the Chinese companies at a time when the FDI from the western countries has ebbed. The PN3 regulations were introduced in 2020, keeping Chinese investments under tight leash. FDI from China during 2020-21 to 2024-25 was just 128 million dollars, a pittance, equalling less than half-a-day’s India’s imports from China in 2024-25!
In the meantime, India’s trade deficit with China has increased from 43.5 billion dollars in 2020-21 to 112 billion dollars in 2025-26. China has become India’s biggest trade partner now. But it is highly asymmetrical: imports from China stand at 131.6 billion dollars while exports to China barely touch 19.5 billion dollars. Both India and China have been putting restrictions in the path of import-exports.
Nearly 80 per cent of electronic needs of India are met by imports from China. Besides, heavy industrial machinery, solar cells and other material constitute major imports from China. On the other hand, exports from India to China are constituted mainly by low-value raw materials.
In other words, we need to increase our manufacture and to export finished products. PN3 amendments could help reduce import dependence and help increase production and production-related capacities. Thus the Chinese FDI could help boost exports by building factories.
India can take advantage of this aspect of the scenario to reduce the trade imbalance. Besides, the Chinese have reduced oil imports from Hormuz region. This goes to India’s advantage as the oil thus released can be diverted to India by creating a favourable geopolitical relationship with China and Russia.
Chip manufacture and trade is emerging as a new key area in the global trade. India is increasingly importing chips and semi-conductor items from China, giving rise to new strategic cooperation and trade. The chip market is a new source of global conflict, being used by the US to foist trade and armed conflicts. India and China, by mutually cooperating in this field can contribute to the prevention of such wars.
The recent changes in geopolitics have brought India, China and Russia nearer, have drastically reduced border tensions, creating favourable conditions. This multi-lateral cooperation can play a crucial role in maintaining peace all over the world.
India needs to give up its policy of blindly following the US dictates and of surrender. At the same time, China too must give some of its stringent policies and should remove all the restrictions on trade and economic exchange. Recently, it has made the transfer of goods across India more restrictive. This needs to be reversed and given up.
India should maintain its traditional independent, sovereign and healthy stance in foreign policy while developing relations with all. It needs basically to develop its productive capacities to strengthen its economic independence.
Friendship with Russia and China, as also with other progressive countries, and developing strategic and tactical perimeters will make it more possible to fight off the US economic and political pressures. (IPA Service)
