**SCO Instrument in Strengthening Bilateral Cooperation**
*Xi Jinping and Modi: “Development Partners, Not Competitors”*
*Many Pending Issues, Including India’s Trade Deficit with China and Border Disputes, Remain Challenges for Fundamental Improvement*
Ahead of China’s 80th Victory Day anniversary, the Shanghai Cooperation Organization (SCO) summit saw the participation of leaders from authoritarian states, including Russian President Vladimir Putin and North Korean Chairman Kim Jong-un, garnering global attention. The meeting between Chinese President Xi Jinping and Indian Prime Minister Narendra Modi drew particular interest. Enhanced cooperation between the two countries through the SCO could significantly impact global security and the economy.
On August 31 (local time), as reported by Reuters, President Xi and Prime Minister Modi discussed improving trade relations, defining each other as “development partners.” Despite the remaining tensions, both leaders clarified their intention to collaborate on economic issues.
The catalyst for Sino-Indian cooperation has been U.S. President Donald Trump. Recently, India was subjected to reciprocal tariffs reaching 50% by the U.S. government. China has also been in a continuous tariff conflict with the U.S. since the start of Trump’s second term. With no end to conflicts with the U.S. on the horizon, both China and India saw the necessity for an alternative, leading to Modi’s visit to China for the first time in seven years. Bloomberg noted that after the trade war with the Trump administration, China and India are accelerating efforts to restore their relationship. Despite longstanding militaristic and diplomatic conflicts, the two countries are perceived as “essential partners” economically.
The economic cooperation between the two countries contains immense potential. Together, they possess a giant market of 2.8 billion people, being the first and second largest populous countries in the world. Both countries have the supply chains to manufacture a wide array of products from high-tech to light industry goods, and they possess abundant natural resources from their vast territories. Geographical proximity facilitates the exchange of physical and human resources, indicating an evident rise in their influence on the global economy should they cooperate. Furthermore, both countries are closely connected economically and diplomatically with developing and emerging nations of the “Global South,” fostering expectations that they could form a massive economic bloc supported by the Global South.
However, transforming the current collaboration—aimed at avoiding conflict with President Trump—into a long-term relationship requires addressing several issues. The foremost challenge is the severe trade imbalance between India and China. Last year alone, India’s trade deficit with China reached $99.2 billion. Prime Minister Modi will likely prioritize reducing this deficit in his cooperation with China.
The possibility of renewed border disputes also looms large. Additionally, China’s construction of a massive dam in Tibet could reduce the flow of the Brahmaputra River, which passes through India, by up to 85% during the dry season, fueling dissatisfaction in India. Further complicating relations, India continues to offer asylum to the exiled Tibetan leader, the Dalai Lama, whom China considers a dangerous separatist, while China provides economic and military support to Pakistan, India’s adversary. These factors pose significant obstacles to any fundamental improvement in relations.