The latest India-China high-altitude border face-off has kicked chances of economic relations normalising further into the long grass. Hawks are demanding an all-out trade war but that’s an illusory goal with so many Indian companies still heavily relying on the Middle Kingdom for components.

It’s nearly three years since the lethal Ladakh clashes when India decided to squeeze business dealings with China. Even so, China imports have leapt every quarter and the trade deficit has ballooned to $70 billion. But smaller Chinese firms with their eye on India have dropped projects, social-media giants like TikTok have had to shut shop and three Chinese telecom companies, Vivo, Oppo and Xiaomi, are facing endless tax wrangles.

Still, it’s hard to tell how many Chinese companies are making efforts to build a presence in India. Any company that really wants to move into India invariably registers in a third country like Singapore. There are, though, Chinese firms that have clearly put their Indian plans on hold. BYD, which make electric buses and SUVs, sees India as a huge growth market and MG appears to be doing well despite debuting on the road with a pricey electric SUV. Other companies like Great Wall Motors have invested ₹2 billion into Brazil, likely money that would have gone into India, while Chery Motors is looking at producing both SUVs and batteries in Indonesia which boasts large lithium stocks for battery production.

India hasn’t put a blanket ban on Chinese companies entering the country. But the ones likeliest to get the thumbs-up, says lawyer Santosh Pai, are private firms ploughing substantial investments into employment-generating joint ventures. The government is also wooing companies like Apple and Foxconn that want to build up India as a serious alternative base. But such companies also fret they may face a China backlash if they move out to countries like India in a big way.

What more can India do if there’s constant military aggression on the border? It could introduce a banned list like the US but the Chinese could also retaliate by cutting back on imports of commodities like iron ore that can easily be sourced elsewhere. And there’s always the danger China might decide to deploy its ace-card by curbing exports of active pharmaceutical ingredients (APIs) to India. We’ve been re-launching production of APIs but we’re still far from scale. It could take up to four-five years before we see any visible results on this crucial front.

Also, India is looking to massively expand its manufacturing base with schemes like the PLI (Production Linked Incentive) in key industries. If this takes place in a big way, we’re sure to need Chinese components for most of these industries. “If we have to rely on Chinese intermediate good and capital goods to expand, it’s okay,” says Manoj Kewalramani, chairperson, the Indo-Pacific Research Programme and China Studies Research Fellow at the Takshashila Institution.

Harbinger of more clashes

December’s Tawang brawl when Indian and Chinese soldiers fought with clubs, stones and fists, is almost certainly a harbinger of more clashes to come as the Chinese are out to teach India a lesson for its increasing strategic cooperation with the West. The Chinese also argue India has shifted the goalposts by building better border infrastructure and are deaf when it’s pointed out they’ve been on an infrastructure-building spree.

Still, for the moment, the Chinese have bigger fish to fry than India.

There are indications China is feeling globally isolated and is making an effort to move back into the mainstream. China’s leader Xi Jinping made his first trip abroad to be at the G20 Bali summit. There, China went along with criticism of Russia’s Ukraine invasion, possibly signalling it doesn’t want to be out of step with the rest of the world.

It will be India’s turn to host the G20 Summit and world leaders will congregate here next year. Kewalramani says China won’t want to internationalise the border issue and have the spotlight turned on it because of clashes. But there are always chances of smaller conflicts breaking out at the ground level.

Also, India is still a small player in China’s world view. Beijing would like to bring us to heel and accept its Asian predominance, but it isn’t an immediate giant-sized issue. China’s main beefs are with the US and Washington’s efforts to rally an anti-China coalition. The best India can do is focus on building our economy so we can confront border military challenges without encountering vital supply disruptions.