How the China-India Rapprochement Reshapes South Asia’s Economic Landscape

Mohammad Maruf Hasan, PhD :

Indian Prime Minister Norendra Modi’s inaugural visit to China in seven years at the Shanghai Cooperation Organization conference in Tianjin indicated resurgence in bilateral engagement.

President Xi emphasized the reinstatement of flights, the easing of visa restrictions, and the de-escalation of border tensions, characterizing India as a “partner.” Both leaders approved a four-point framework for cooperation including multilateralism, exchanges, and economic relations.

India may reevaluate its restrictive investment regulations, thereby enhancing Chinese participation in high-tech industries, fortifying South Asian connectivity, and promoting regional economic advancement and after that the new multipolarity come to the south Asia.

The improvement in Sino-Indian relations has broader implications for South Asia; the prudent rapprochement between China and India transcends bilateral relations; it reconfigures the political economy of South Asia. For decades, the area has been ensnared in the struggle between India’s supremacy and China’s expanding influence via the Belt and Road Initiative (BRI).

A rapprochement between the two powers creates fresh opportunities for multipolarity in the region, allowing smaller nations to acquire strategic latitude for balanced economic development.
Bangladesh, geographically positioned in South Asia between India and the Bay of Bengal, is among Asia’s rapidly expanding economies, dependent on both India and China.

China is a significant investor, financing projects such as the Padma Bridge Rail Link, Payra Port, power plants, and industrial zones, offering finance and infrastructure experience. India is essential, providing cotton, food, and energy, while investing in cross-border transportation critical for exports.

A collaborative Sino-Indian alliance could facilitate Bangladesh’s strategic equilibrium, enabling interaction with both nations without necessitating a partisan stance. The reactivation of the Bangladesh-China-India-Myanmar (BCIM) Economic Corridor will enhance Dhaka’s status as a bridge economy, reduce transit expenses, broaden export prospects, and elevate its standing in regional supply chains.

Nepal, historically perceived as a buffer between India and China, may evolve into a bridge state should Sino-Indian relations continue to improve. Historically, Kathmandu’s foreign policy has been reactive, favouring Beijing when relations with New Delhi deteriorated, and conversely. This precarious equilibrium rendered Nepal susceptible, with minimal independence in determining its economic future.
A rapprochement between its two neighbours presents new chances.

Nepal’s geostrategic position renders it an inherent transit nexus connecting South Asia with the Tibetan plateau. Initiatives such as the Bangladesh-China-India-Nepal (BCIM) corridor or a railway from Tibet to Kathmandu might establish Nepal as a crucial link in regional supply networks. Likewise, collaboration in Nepal’s unexploited hydropower industry might enable electricity exports to India, utilizing Chinese capital and expertise for infrastructure development.

Enhanced connectivity will help augment tourism, featuring trilateral cultural circuits that highlight Everest and Lumbini for visitors from both countries. Nepal must simultaneously prevent the emergence of a corridor economy that excludes local benefits.

If China and India maintain collaboration, Nepal might transform its geographical disadvantage into an asset, becoming a pivotal link for South Asian economic unification.

Sri Lanka, an island nation strategically perched along vital Indian Ocean shipping lanes, has long been a focal point of China-India competition. Over the past decade, Beijing’s large-scale investments—most notably in the Hambantota Port and Colombo Port City—cemented China as a dominant player in the country’s infrastructure landscape.

Yet, when Sri Lanka’s crippling debt crisis erupted in 2022, India stepped in with nearly $4 billion in emergency credit lines, fuel shipments, and humanitarian aid, reaffirming its indispensable role as Colombo’s immediate lifeline.

A potential easing of tensions between Beijing and New Delhi offers Colombo rare breathing space. Instead of being forced into zero-sum alignments, Sri Lanka could negotiate more balanced deals.

China may be more flexible on debt restructuring if India is not seen as a direct adversary, while India could expand trade, tourism, and connectivity initiatives without framing them as counterweights to Chinese influence. This environment could reduce the polarizing nature of “debt-trap” narratives, allowing Sri Lanka to pursue pragmatic partnerships with both powers.

For decades, Pakistan has based its foreign policy on a robust “all-weather” cooperation with China, mostly founded on mutual distrust of India. The China-Pakistan Economic Corridor (CPEC), a premier initiative of Beijing’s Belt and Road Initiative, epitomized this strategic partnership. A renewed rapprochement between China and India may necessitate Islamabad to reevaluate its entrenched views.

If Beijing and New Delhi manage to stabilize their relations, Pakistan may experience a reduction in its strategic leverage. China’s necessity to equilibrate its relations with its two South Asian allies may result in diminished unqualified support for Islamabad, particularly over contentious matters such as Kashmir. Simultaneously, enhanced Sino-Indian relations may alleviate regional tensions, facilitating Pakistan’s economic re-engagement with India via trade corridors, energy collaboration, and regional connectivity. Such chances could alleviate Pakistan’s ailing economy, which has been ravaged by debt, inflation, and foreign exchange issues.

This evolving environment presents both a difficulty and an opportunity. Pakistan faces the threat of marginalization if it adheres inflexibly to outdated strategic positions. However, suppose it recalibrates, utilizing its position as a conduit between China and India. In that case, it might evolve from a frontline state of hostility into a benefactor of South Asia’s burgeoning multipolar system.

Notably, the Maldives, Bhutan, and other island or periphery states have frequently been positioned between the two powers. The Maldives exemplifies this phenomenon: successive administrations in Malé have alternated between “India First” and “China First” policies, illustrating how foreign alliances can influence domestic politics. A less adversarial Sino-Indian relationship would afford Maldivian leaders increased latitude to navigate, allowing them to cultivate balanced relationships instead of being compelled to make binary decisions.

For Bhutan, which has historically been associated with India and approached China with caution, a more amicable regional environment may facilitate prospects for restricted economic collaboration with Beijing without jeopardizing relations with New Delhi. Likewise, smaller states in the Indian Ocean, notably island nations dependent on tourism and maritime commerce, may diversify their funding sources and bargain from more advantageous positions.

The recent China-India reconciliation presents the potential for strategic autonomy for both nations. Smaller states can cultivate independent foreign and economic policies by diminishing the zero-sum dynamics of regional power competition, thereby utilizing both major powers for infrastructure, trade, and development while preserving their sovereignty.

(The author is an Associate Professor, School of International Studies, Sichuan University, Sichuan, China).