Can a Sino-Indian détente reinvent Global South solidarity? Number Theory

China is already the world’s second largest economy. India will soon become the third largest.

The biggest highlight of the 18th BRICS Summit underway in New Delhi is the thaw in relations between China and India. China’s President Xi Jinping’s visit is his first to India since 2019. Prime Minister Narendra Modi visited China in 2025 for the Shanghai Cooperation Organisation meeting. These interactions follow a deterioration in relations between the two countries after a border dispute erupted in 2020.

Chinese President Xi Jinping will visit India for the first time in nearly seven years to attend the 18th BRICS Summit in New Delhi on September 12-13, China’s foreign ministry said on Thursday (In picture: PM Modi with Xi Jinping) (Reuters)

What promise or potential does this diplomatic thaw and possible détente hold? China is already the world’s second largest economy. India will soon become the third largest. To be sure, the two have a large gap between them. Here is what a non-zero-sum-game Sino-Indian relationship could do for the Global South as a whole.

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  Sino-Indian economic relations are marked by an asymmetry between trade and investment

  India imported goods worth $131 billion from China in 2025-26, 17% of its total imports that year. The country ranked second, UAE, had a share of just 8.2%. China’s importance in trade is much larger than its importance in investments in India. In 2025-26 Chinese FDI in India amounted to just about $6 million, not even one percent of total FDI in India. To be sure, some of the FDI friction resulted from Indian policies such as PN3, which prohibited Chinese FDI in India. These restrictions were recently removed and it remains to be seen whether the bilateral between Narendra Modi and Xi Jinping sees announcements of Chinese investments in India. Clearly, India stands to gain from expanding its economic engagement with China, especially in sectors such as manufacturing.
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  A sustained revival in investment will require improvements in non-economic aspects of the Sino-Indian relationship

  To be sure, Sino-Indian relations cannot be evaluated on the basis of just economics. The two countries fought a war in the 1960s, continue to have a border dispute and India has had a genuine grudge about China shielding Pakistan in international forums despite the latter’s role in promoting terror in India. China and India are not alone in having such a trust deficit. Geopolitical friction, the latest UNCTAD World Investment Report shows, is the leading cause of derailing investment between countries. “Two thirds of (investment promotion) agencies reported that geopolitical and trade policy turbulences have been the main factors affecting investment in their country, leading to project cancellations or downsizing in some cases, but also to relocations both into and out of their economies”, the report said. National security concerns also figured in the responses. Any sustained economic engagement will require a management and subsequent resolution of lingering Sino-Indian non-economic dispute.
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  A Sino-Indian revival in investment matters from a macro perspective too

  China today, is the world’s largest manufacturing power house. It also wields unprecedented export dominance in the world. Its excess capacity in domestic manufacturing, is generating massive headwinds for all major economies, both rich and non-rich. A recently published analysis in these pages also showed, how, the real export competition between China and rich-country groups such as the G-7, is now happening in non-G7 markets. This entails Chinese export dominance making the world economy a zero-sum-game where every other country is at the risk of seeing its own manufacturing base getting stunted under a Chinese import deluge. This is happening at a time when FDI as a whole is more interested in going to richer countries than non-rich ones, thanks to things such as the AI boom and resurrection of industrial policy – developed economies are giving far more subsidies than developing ones – across the world. The dominance of investment in strategic sectors has come at the cost of sectors such as Global Value Chain intensive manufacturing. The value of announced greenfield projects in non-strategic manufacturing, fell from $970 billion between 2015-19 to $807 billion between 2021-25, according to UNCTAD. The fall was most pronounced in developing and least developed countries.

This trend, if it were to continue, will only worsen the existing economic imbalance in developing countries which need outside capital and technical skills which often comes with FDI. If China and India can resolve their disputes and establish a mutually beneficial investment relationship, it could set the template for a larger economic engagement for the Global South. This engagement would position China not as an overwhelming economic force, but as a willing partner in economic cooperation. Whether or not it happens remains to be seen.