A new chapter

China's President Xi Jinping wrapped up a three-day visit to India on Friday, September 19, after pledging to invest 20 billion USD in India and give its companies greater access to key Chinese markets following talks with India's Prime Minister Narendra Modi. Among other things, China will set up two industrial parks in India, support the country in modernizing its railway system and new investments from China could help India reduce its trade deficit.

Xi's first visit to the neighboring country, however, was overshadowed by renewed tensions over a longstanding border dispute. As Xi arrived in India on Wednesday, reports said that 1,000 Chinese soldiers had entered a disputed area in the mountainous northern Ladakh region, sparking a stand-off with Indian troops.

The Chinese troops only began to pull back on Friday. The border issue has overshadowed bilateral ties since India suffered a border war defeat against China in 1962, and both sides frequently trade accusations of incursions.

Gauri Khandekar, head of the Asia Program at the European think tank FRIDE, explains in a DW interview that China is pursuing a double strategy in India. Beijing is trying to show its strength to India, while at the same time embark on a charm offensive to boost economic ties, she says.

DW: How important was this visit? Did the visit mark the beginning of a new era in bilateral ties?

Gauri Khandekar: The visit was highly symbolic and underlined diplomacy. It principally falls well in line with the broader engagement amongst BRICS countries as it builds on their pledge to increase intra-grouping engagement. It also follows on the heels of PM Modi's visit to Japan earlier this month. So, much was about geopolitical balancing both for China and India.

Xi's visit most certainly marked the beginning of greater Chinese investments in India and the recognition that China has a stake in India's economy. President Xi is the first Chinese president to visit India in eight years and brought along a business delegation of more than 135 Chinese CEOs. For China, India is now seen as an opportunity and a country it cannot afford to have on its wrong side.

The trip also marks a new era in bilateral ties with Modi as PM. China and Japan were two countries that received Modi when most countries wouldn't, and had given him a welcome reserved for a Head of State when he was just the Chief Minister of Gujarat. Modi, therefore, has a special connection to both China and Japan.

Moreover, the visit broke a number of protocols. First, President Xi was received in Gujarat, Modi's home state, on Modi's 64th birthday. Second, PM Modi personally received President Xi at his hotel, and furthermore three agreements were signed in the Gujarati city of Ahmedabad rather than in the Indian capital.

Was any progress made on the border issue?

Trouble on the border flared as reports suggested around 1000 soldiers had camped on the Indian side of the border in the Chumar area of Northeast Ladakh as Chinese helicopters dropped packets of food to PLA soldiers below. Indian forces have been reinforced but both sides maintained a 200-meter distance.

This was the worst border incursion in decades. China is trying to show its strength as well as its charm offensive at the same time. In my opinion, it was linked to PM Modi's pre-election promise to take a tough stand on border incursions from Pakistan or China.

This strategy of military standoff amidst highest level talks is strange, but I believe it is designed to drill home the message of the strategic importance of talks with China. It is also a sign of Chinese domination although the Indian PM has used more-than-usual stern language during the visit.

Both leaders have expectedly agreed to solve border issues but they will need to go through mechanisms already in place - such as the border dispute mechanism signed during PM Singh's visit to China in 2013 - and design others meant to deter future aggression. A rhetoric statement saying border disputes need to be solved is insufficient. In addition, a clarification of the line of control, as mentioned by PM Modi, is necessary.

That said, border skirmishes will not flare up into armed conflict. They are more pressure tactics and geopolitical cosmetics rather than actual threats. PM Modi's approach is mainly about developing India economically, and China cannot afford to have one more simmering conflict on its borders in addition to those with Japan and South East Asian countries.

What major investment and trade deals were made?

There were 12 agreements signed in all. Most important amongst them was one in which China pledged to invest 20 billion USD in India over the next five years in infrastructure and manufacturing sectors and in particular to help bring India's ageing railway system up-to-date with high-speed links.

While it was expected that China would invest 100 billion USD, this is nonetheless much higher than the 400 million that China has invested in the last decade. Beijing has also agreed to construct two industrial parks in two Indian states – one in Gujarat and the other in Maharashtra. But the most important aspect of the visit is the investment in Indian railways which will really go a long way in modernizing India's creaking infrastructure.

The visit also saw the twinning of commercial capitals Mumbai and Shanghai as well as the city of Ahmedabad in Gujarat with Guangzhou in the advanced Chinese province of Guangdong. A five-year economic and trade development plan along with the setting up of a services trade promotion group for professionals was also agreed given that India has a large trade deficit with China (36.2 billion USD of a total trade of nearly 76 billion USD).

Around 3.4 billion USD worth of deals were signed between Indian and Chinese businesses of which a 2.6 billion USD agreement was inked between low-cost Indian carrier IndiGo Airlines with the Industrial and Commercial Bank of China on leasing and financing aircraft. India's official carrier Air India might also sign a similar deal worth 2 billion USD with China.

The Export Import Bank of China signed an agreement with the State Bank of India - India's largest lender - to extend a 1.8 billion USD line of credit for projects including those importing Chinese products.

What message did President Xi try to send to China's neighbor Japan through this visit?

President Xi's visit to India is as much a signal to India as it is to Japan. His visit to India was preceded by visits to South Asian island nations Maldives and Sri Lanka. China is keen on developing its presence in the Indian Ocean because two-thirds of Chinese oil and gas pass through it. So China is keen on building a "maritime silk route."

At the same time, however, these countries are also seen by New Delhi as India's backyard and India has been investing much in both Maldives and Sri Lanka to counter Chinese influence. India's "Mausam" maneuver is designed to counter China's growing presence in maritime areas, and is seen as the most significant foreign policy initiative of the Modi government.

Xi's India visit is also a signal to Japan that Sino-Indian ties will not be affected by Indo-Japanese proximity. It also sends a message that Beijing can also counter Tokyo's influence by matching its investments.

How is New Delhi looking to manage ties with both China and Japan?

New Delhi is profiting the most from Chinese-Japanese competition. This is pragmatic India at its best. India will welcome investments from both economic giants in its infrastructure and manufacturing sectors.

But it will not align itself with the US-Japan alliance in containing China. Beijing has also signaled it will welcome New Delhi joining the Shanghai Cooperation Organization which is a sign that Indian diplomacy and strategic balancing has paid off dividend.

How will India's economy profit from these intensifying commercial ties with Japan and China?

India's economy is in a recovery mode - from the double digit growth figures it had touched before the international financial crisis. India needs such high growth to raise millions out of poverty and reach its potential. For India to grow, it needs to again kick start its manufacturing sector and develop world-class infrastructure.

The Modi government is thus welcoming foreign investments especially in these sectors. While foreign investments were not made a priority by the previous government, they are vital for a growing economy like India. Investor confidence is necessary too, and the Modi government is taking steps to ensure a supportive, transparent legal environment.

A number of Japanese companies are a household name in India and Japan has a significant share of the Indian market. It can make greater headway by appealing to the growing middle classes. China is already India's largest trade partner and there is much potential as both countries have pledged to reach 100 billion USD in bilateral trade by 2015.

Gauri Khandekar is head of the Asia Program at the European think tank FRIDE in Brussels.