Prime Minister Narendra Modi’s visit to China for the Shanghai Cooperation Organisation (SCO) summit is not merely a diplomatic courtesy; it’s a pivotal moment with significant implications for global trade and the broader world economy. While headlines often focus on the geopolitical rivalry and border disputes, this visit has the potential to reshape trade dynamics, address supply chain vulnerabilities, and signal a new era of economic pragmatism.
Here’s why PM Modi’s China visit is crucial for global trade:
1. Rebalancing the Widening Trade Deficit
India and China are two of the world’s fastest-growing major economies. However, their bilateral trade relationship is a story of stark imbalance. For years, India has faced a massive trade deficit with China, which widened to an alarming $99.2 billion in the 2024-25 fiscal year. India’s exports to China are largely raw materials, while it heavily imports finished goods, electronics, and crucial industrial components.
This visit provides an opportunity to:
- Negotiate Market Access: PM Modi is expected to push for greater market access for Indian goods, particularly in sectors like agriculture, pharmaceuticals, and IT services, where India has a competitive advantage.
- Diversify Supply Chains: The pandemic and recent geopolitical tensions have exposed the risks of over-reliance on a single country for critical inputs. Discussions could focus on creating more resilient and diversified supply chains that benefit both countries and the wider region.
A more balanced and stable trade relationship between these two economic powerhouses would not only benefit their own economies but also contribute to a more predictable and robust global trading system. For more on the numbers, see this chart on India’s growing trade deficit with China and a detailed analysis by the Times of India.
Also Read : (PM Modi’s Japan & China Visits: Why India is Hedging Its Bets in Asia)
2. Shaping the Future of Multilateral Trade and Economic Blocs
The SCO summit is a key platform where non-Western powers discuss economic cooperation and a new world order. With the rise of protectionist sentiment and trade conflicts in the West, India’s presence at the SCO and its bilateral meetings with leaders like Chinese President Xi Jinping and Russian President Vladimir Putin send a powerful signal.
This is a chance for India and China, along with other SCO members, to:
- Promote an Alternative Trade Vision: They can advocate for a global trade system that is not solely dominated by Western-led institutions.
- Collaborate on Infrastructure and Connectivity: Projects under the SCO and other initiatives can improve cross-border trade and logistics, creating new corridors for commerce that bypass traditional routes. While India has been cautious about China’s Belt and Road Initiative (BRI) due to sovereignty concerns, it remains open to other connectivity projects that adhere to international norms.
By actively engaging in these discussions, India can ensure its voice is heard in the formation of new economic rules and norms, which will directly impact its trade relationships with countries far beyond Asia. For a deeper look at SCO’s economic agenda, you can read more about its evolution and goals.
3. De-risking and Normalizing Relations to Boost Business Confidence
The recent years of border tensions have created a climate of uncertainty that has negatively impacted business and investment. Many companies in both India and China have been hesitant to make long-term commitments due to the risk of political fallout.
This visit can serve as a catalyst for:
- Restoring Business Confidence: A successful and amicable visit, even if it doesn’t solve all issues, can signal a willingness to de-escalate tensions and return to a more stable relationship. This can encourage a fresh wave of business-to-business engagement.
- Easing Trade Barriers: Discussions on resuming direct flights, reopening border trade routes, and lifting certain trade restrictions can create a more conducive environment for economic activity. The reopening of the Shipki-La pass in Himachal Pradesh is a positive example of this.
For global companies operating in or trading with Asia, a more predictable India-China relationship is a significant factor in their investment decisions. The stability brought by this visit could unlock new opportunities and foster greater regional economic integration. A recent Policy Circle article provides more context on the persistence of trade tensions and the economic imperatives driving the recent thaw.
In a world grappling with economic volatility and shifting alliances, the collaboration between two of its largest and most populous nations is paramount. PM Modi’s China visit is a crucial step towards fostering economic stability, rebalancing trade, and charting a new, more interconnected path for the global economy.
