The meeting between Indian Prime Minister Narendra Modi and Chinese President Xi Jinping at the BRICS summit is shaping up as the clearest test yet of whether the two countries’ post-2020 diplomatic thaw can become something more durable.
Xi’s visit marks his first trip to India since 2019 and since deadly border clashes in 2020 pushed bilateral relations into a deep freeze. The relationship has improved over the past year, with direct flights resuming, border trade restarting and people-to-people exchanges gradually normalizing.
The border remains the central political constraint. India and China have disputed parts of the Himalayan frontier for decades, including a war in 1962 and repeated military standoffs. A recent meeting between Chinese Foreign Minister Wang Yi and Indian National Security Advisor Ajit Doval produced signs of progress, including a more positive tone around cross-border movement and pilgrimages.
That progress should not be overstated. The source also points to reports of continued Chinese restrictions on Indian Army access to some patrolling areas and alleged encroachment in Arunachal Pradesh. The thaw therefore looks more like risk management than full strategic trust.
Trade is the second major issue. Two-way commerce reached a record $151.1 billion in the year to March 2026, leaving China as India’s largest trading partner. India’s deficit with China widened to a record $112.16 billion from $99.21 billion the previous year.
That imbalance has strategic consequences. India relies on Chinese components and industrial goods in sectors it wants to develop domestically, including batteries used in green-energy infrastructure. New Delhi wants greater market access for Indian exports while also reducing dependence on Chinese supply chains.
The geopolitical backdrop gives India additional leverage but also complicates its choices. Relations with the second Trump administration have become strained over trade and tariffs, pushing New Delhi to diversify partnerships while maintaining its long-standing preference for strategic autonomy.
India has simultaneously expanded ties with Australia, Indonesia, Uzbekistan, the United Kingdom and the European Union. Participation in BRICS and the Shanghai Cooperation Organisation allows Modi to signal that India will work with China and Russia without abandoning its relationships with Western partners.
For investors, the bilateral meeting matters most for trade, supply chains and capital flows. A more stable India-China relationship could reduce political risk around manufacturing, cross-border investment and regional commerce. It could also improve sentiment around companies exposed to both markets.
But the structural problems are too large for one summit to resolve. The border is unresolved, the trade deficit is expanding and strategic competition remains real.
The most constructive outcome would be incremental: more reliable border management, better market access and fewer restrictions on commercial exchange. A dramatic reconciliation is unlikely. What investors should watch for is whether the reset becomes predictable enough to reduce the risk premium around Asia’s two largest economies.
The technology sector will be especially sensitive to any easing of restrictions. Indian startups and manufacturers often want Chinese hardware or capital, while policymakers worry about strategic dependence. Incremental regulatory relaxation could therefore have an outsized effect on investment activity.
Economic competition may ultimately be harder to manage than diplomacy. India wants Chinese capital and components in some sectors while simultaneously trying to develop domestic manufacturing and reduce strategic dependence. China wants access to the Indian market but resists political concessions around the border. That creates a relationship where commercial normalization can advance even while strategic rivalry persists. For businesses, that may still be enough. Predictable customs rules, investment approvals and supply-chain access can reduce uncertainty without requiring the two governments to become close partners.