Prime Minister Narendra Modi and Chinese President Xi Jinping on Saturday, 12 September, agreed on the urgent need to address the structural trade imbalance between India and China, alongside supply chain vulnerabilities and the facilitation of 'meaningful and predictable market access,' the Ministry of External Affairs (MEA) said following their bilateral meeting in New Delhi. The talks took place on the sidelines of the BRICS Summit 2026, marking Xi's first visit to India in nearly seven years.

Key outcomes of the bilateral meeting

According to the MEA statement, the two leaders reviewed progress in people-to-people ties and 'underscored the need to further promote cultural exchanges, business linkages, and greater mobility.' On trade, both sides acknowledged 'each other's concerns, including structural trade imbalance and supply chain issues.'

This is the third consecutive year in which Modi and Xi have held face-to-face talks, following their meetings in Kazan and Tianjin. The continuity of engagement reportedly signals a measured diplomatic thaw, even as the trade deficit between the two nations has ballooned.

What Xi and Modi said

President Xi stated that 'China-India relations have developed, with both sides keeping in mind the long-term development of bilateral relations from a strategic perspective.' He added that despite differences, the two nations have been able to 'support and help each other to achieve common development.'

Prime Minister Modi, in turn, expressed gratitude for Beijing's cooperation during India's BRICS chairship. 'We now have the opportunity to discuss bilateral cooperation,' he said.

India-China trade deficit hits record $112 billion

The backdrop to these talks is a rapidly widening trade gap. India's trade deficit with China surged to $112.16 billion in 2025-26, up from $99.21 billion in 2024-25. While Indian exports to China rose 36.62 per cent to $19.47 billion, imports climbed 16.03 per cent to $131.63 billion, pushing total bilateral merchandise trade to $151.10 billion — a 18.31 per cent increase year-on-year.

Notably, China has overtaken the United States as India's largest trading partner, a shift that underscores the scale of commercial interdependence between the two Asian giants.

Supply chain exposure runs deep

The imbalance is not merely a consumer-goods story. A large share of India's imports from China consists of essential industrial inputs, components, and capital goods used by Indian manufacturers. Four key sectors — electronics, machinery, computers, and organic chemicals — account for roughly 66 per cent of these imports, according to a Global Trade Research Initiative (GTRI) report.

China supplies approximately 43 per cent of India's electronics imports and 40 per cent of machinery and computer imports, making these core inputs vital to domestic manufacturing rather than discretionary consumer purchases. India also imports over 40 per cent of six key critical minerals from China, exposing major vulnerabilities in its renewable energy, electric vehicle (EV), and defence supply chains.

The GTRI report highlights that any withholding of these exports by China could trigger significant disruptions across India's clean energy, electronics, and pharmaceutical sectors.

What lies ahead

Beijing, for its part, is reportedly seeking an easing of India's investment rules to allow Chinese companies to participate in the fast-growing Indian market — a sensitive issue given longstanding security scrutiny of Chinese FDI since 2020. Whether New Delhi offers any concession on this front could determine the pace at which the trade-rebalancing agenda advances.

With both leaders now signalling intent to address the deficit structurally rather than rhetorically, the next few months will test whether diplomatic goodwill translates into concrete market-access arrangements and supply chain diversification roadmaps.