Chen was accompanied by a delegation of Taiwanese business executives and industry representatives who took part in the sixth India-Taiwan Industrial Collaboration Summit, as well as the inaugural edition of a round table featuring CEOs from both sides. Their first high-level bilateral meeting in years also took place when Chen met Piyush Goyal, India’s commerce and industry minister.

The meeting, which came almost a year after the two sides launched negotiations on a possible free trade agreement last December, resulted in three tie-ups between Taiwanese and Indian firms and a fresh push to sign the free-trade pact.

Amid chill in China ties, India and Taiwan look to ‘deeply engage’

Analysts said this built momentum for Taiwan and India to forge even stronger economic ties, against the backdrop of a troubled geopolitical environment and as both have had heightened tensions with Beijing.

“There is a diplomatic expression in these economic ties, a political message in it,” said Prashant Kumar Singh, an associate fellow at the Manohar Parrikar Institute for Defence Studies and Analyses in New Delhi who specialises in mainland China and Taiwan

“For Taiwan, it is useful to show that it has partners, while for India, it serves as a reminder for China that New Delhi has the Taiwan ‘card’ if it wants to employ it.”

Trading chip know-how for market access

India-Taiwan trade is on the upswing, as are people-to-people exchanges – especially between their think tanks and scholars.

Bilateral trade touched nearly US$9 billion in the financial year ended March, a notable increase from the US$6 billion recorded in 2017-18 but still a fraction of the US$103 billion in trade India did with mainland China in 2021-22.

More than 130 Taiwanese companies have also set up shop in India, investing over US$2.3 billion in sectors such as medical equipment manufacturing and information and communications technology.

Officially, India supports the one-China principle proscribing Delhi from recognising Taiwan or maintaining diplomatic ties with the self-ruled island. But it has not reaffirmed its support in decades, with its ambivalence only growing more evident as relations with Beijing have soured.

While it’s highly unlikely that Delhi would risk Beijing’s wrath by openly ditching the one-China principle – despite calls from some domestic media commentators for it to do so – analysts said India sees business partnerships as a way of bolstering its Taiwan ties without violating any of mainland China’s red lines.

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A week before Chen’s visit, Taipei’s de facto envoy to India – economic and cultural representative Baushuan Ger – urged the two sides to finalise their free trade pact “as soon as possible” and said it was “high time” for both “to engage in strategic collaboration”.

This focus on economic ties “should not be underestimated”, said Harsh Pant, vice-president of the Observer Research Foundation think tank in Delhi, who co-hosted last month’s inaugural India-Taiwan round table in Delhi featuring both side’s CEOs.

“While the US is creating a strategic space with its signalling, it is India – through its focus on the economics – that is offering Taiwan the market scale that it needs to reduce its dependence on the Chinese market,” he said.

Gaining greater access to the Indian market would enable Taiwanese companies to better compete with their Korean and Japanese rivals, who already benefit from existing bilateral trade agreements, and according to Pant offers Taipei some protection against any future punitive economic action from Beijing.

Given the minimal trade Taiwan currently does with India compared to its two-way trade with mainland China, the extent of this protection is debatable. But analysts said the self-ruled island’s businesses wanted something else as well: a safe base.

“Taiwanese companies want to try and establish secondary production facilities in ‘neutral’ places outside of China and Taiwan and cover their risks,” said Sanjay Agarwal, president of the Electronic Industries Association of India (ELCINA).

“So they are increasingly looking at countries like Vietnam and India.”

Military threat aside, Taiwanese firms run risks if they shun mainland China

ELCINA announced a mutual understanding with Taiwanese memory chip maker Adata when the delegation from the self-ruled island visited Delhi this month.

Agarwal said Adata was “interested in coming to India” and exploring the policies and conditions relating to setting up a business, “and ELCINA will help it research and understand this better”.

Closer ties with Taiwan will also help Delhi inch closer to its goal of boosting domestic semiconductor manufacturing. Semiconductors, or chips, are sometimes called the brains of modern electronics and are an essential component in everything from smartphones to new cars, advanced medical equipment and military hardware.

India has no domestic semiconductor manufacturing at present and imports all of its chips, with more than 75 per cent of those used in the Indian smartphone industry coming from Taiwan, according to an estimate by the India Cellular and Electronics Association. Delhi and Taipei are currently in talks on a US$7.5 billion deal for a chip manufacturing plant, Bloomberg reported last month, as part of India’s efforts to reduce this reliance on imports.

Indian government forecasts value the country’s market for semiconductors at US$63 billion by 2026, up from less than US$20 billion in 2020, and a reliance on imported chips could cause serious disruption to the country’s manufacturing capabilities, as seen with the recent global chip shortage that hit amid the pandemic.

Agarwal, the industry board head, said that “India can boost the domestic manufacturing of various electronic equipment” such as various types of electronic components and assemblies, including semiconductors, by forging closer ties with Taiwan, which he called “a giant when it comes to electronics manufacturing”.

‘Taiwanese companies will require a lot of convincing’

A Delhi-based insider who has had extensive dealings with Taiwanese envoys and business representatives told This Week in Asia that divergent expectations of what closer ties would mean could yet stymie the India-Taiwan relationship.

“India is trying to lure Taiwanese chip manufacturers but this is a time-consuming process and Taiwanese companies will require a lot of convincing,” said the person, who is well-acquainted with the subject but refused to be named because of its sensitive nature.

“On the other hand, Taiwan wants a free-trade pact, which India doesn’t see much value in right now.”

Some Indian media commentators have openly called for Delhi to abandon the one-China policy, recognise Taiwan diplomatically and establish formal ties. But few expect such calls to be heeded.

“India embracing Taiwan and recognising it is not going to make much of a difference to the Taiwanese cause,” said Pant, the analyst. “Instead, it will lead to China directing all its wrath at India.”

Delhi will doubtless be wary of angering Beijing, analysts said, as the bloody violence of June 2020 – when at least 20 Indian and four Chinese soldiers died in a clash in the Galwan valley region of Ladakh – is still fresh in many minds.

Tensions ease on China-India border amid changing geopolitical landscape

“There is clearly a momentum in India-Taiwan ties, but it’s not entirely clear where it is headed,” said Singh of the Manohar Parrikar Institute.

“When you have 50,000 armed troops standing on your border, your priority has to be Galwan, not Taiwan.”