Context

• As 2026 begins, China presents a striking paradox: Anxious yet assertive China, facing deep economic and structural stresses at home while projecting growing strategic confidence abroad.
• This duality shapes Beijing’s domestic governance, foreign policy, and military posture.
• For India, these shifts are further complicated by a recalibration of U.S. priorities, narrowing India’s strategic space and making the management of an already difficult relationship with China more complex.

China’s Strategic Mood Shift: From Anxiety to Assertiveness

• Unease Over US Pressure
  • Until late 2024, Chinese strategic thinking was marked by unease over U.S. pressure, slowing growth, and geopolitical isolation.
  • By mid-2025, this anxiety had largely given way to confidence.
  • Beijing’s strategic community increasingly believed China had stabilised its position in great-power competition, managed escalation with Washington more effectively, and gained tactical advantages in trade and tariffs.
• Closer Alignment with Russia
  • This shift was reinforced by China’s expanding influence in the Global South, closer alignment with Russia, and stabilisation of most major-power relationships, except Japan.
  • Yet this confidence remains tempered by awareness of domestic fragilities and a hostile external environment.
  • These tensions were evident at the Fourth Plenum and Central Economic Work Conference in late 2025, where President Xi Jinping reaffirmed national security, technological autonomy, and the real economy as core organising principles.

Economic Strain and the Turn Inward

• Despite official growth figures near 5% in 2025, China’s economy remains under strain.
• Domestic demand is weak, the property sector continues to depress confidence, and deflationary pressures persist, with producer prices in negative territory for over three years.
• Productivity growth and corporate profits remain sluggish, while local governments face severe fiscal stress, limiting stimulus options.
• Rather than pivot decisively toward consumption-led growth, Beijing has reinforced State-led technological self-reliance, prioritising advanced manufacturing, semiconductors, artificial intelligence, green energy, and dual-use technologies.
• The 15th Five-Year Plan (2026–30) underscores supply-chain insulation and whole-chain breakthroughs to reduce exposure to external shocks.
• Paradoxically, China’s inward turn has coincided with rising export dependence.
• The trade surplus crossed $1 trillion in the first eleven months of 2025, as China deepened dominance across global value chains in electric vehicles, batteries, solar panels, and industrial machinery.
• This renewed export surge, widely described as China Shock 2.0, has disrupted both developed and developing economies and intensified global trade tensions. 

Political Consolidation and Military Assertiveness

• Domestically, 2025 saw further political consolidation under Xi Jinping. Information control tightened, ideological discipline was reinforced, and the scope of national security expanded.
• At the same time, the sacking of senior military officers exposed persistent dysfunctions within the party-state system.
• Militarily, the PLA continued rapid modernisation of conventional and nuclear forces.
• Emerging doctrinal shifts toward an early-warning counter-strike posture suggest a more risk-tolerant and assertive strategic outlook, reflecting a willingness to accept higher risks in defence of core interests. 

Recalibrated Great-Power Dynamics

• Externally, the most consequential shift was the recalibration of U.S.–China relations under President Donald Trump’s second term.
• The 2025 U.S. National Security Strategy reframed China primarily as an economic competitor, deprioritised the Indo-Pacific, and emphasised a more inward-looking America First approach.
• Nevertheless, rivalry persists, as demonstrated by U.S. intervention in Venezuela, which damaged Chinese interests and triggered sharp reactions from Beijing.
• The Trump–Xi meeting in Busan in October 2025 produced limited de-escalation through modest tariff adjustments and selective easing of export controls.
• These steps reflected transactional U.S.–China accommodation, not movement toward a cooperative G2.

Implications for India–China Relations

• For India, these developments are sobering. Frictions in India–U.S. ties over trade, Russia, and Pakistan have reduced Washington’s willingness to prioritise India as a strategic counterweight to China.
• Simultaneously, Beijing increasingly perceives India’s interest in stabilisation as driven by uncertainty in India–U.S. relations, reducing incentives to accommodate Indian concerns.
• India–China relations in 2025 saw cautious stabilisation without progress on core disputes. High-level exchanges arrested deterioration, but border conditions remain stable yet abnormal.
• Disengagement has not been matched by de-escalation, and buffer zones continue to limit India’s traditional patrolling rights, reflecting Grey-zone incrementalism.

Conclusion

• China is likely to persist with managed competition with the U.S., stabilisation combined with hardball diplomacy, intensified Global South outreach, and calibrated assertiveness along its borders and maritime periphery. Grey-zone tactics will remain central.
• For New Delhi, the path forward requires calibrated engagement, strengthened domestic capabilities, and Asymmetric deterrence and patience.
• External balancing remains relevant but cannot be assumed reliable in an era of selective great-power accommodation.
• India must prepare for a prolonged strategic contest with resilience and strategic clarity.