China's Engagement in India-Pak Conflict - US-China 'Deal' on New 'Consultation Mechanism' - RMB 500 Billion Re-lending Facility for Service Consumption & Elderly Care

Hi folks,

I want to begin today with a brief note about the unprecedented events of last week. India and Pakistan engaged in what the Indian Director General of Military Operations last night termed as “no less than war.” There is a ceasefire that was announced on Saturday. There were violations on Saturday night despite the announcement of the truce. But since then, the situation seems to have quietened. A conversation between the two DGMO’s is expected on Monday. In his speech following the announcement of the ceasefire, Pakistan Prime Minister Shehbaz Sharif thanked the US President Donald Trump, Saudi Arabia, the United Arab Emirates, Turkey, Iran, and, of course, China. He termed China as “one of our most reliable friends.”

China today is deeply involved in the security dynamics of the Indian subcontinent. China is Pakistan’s biggest weapons supplier. In the past week, we’ve seen a range of Chinese weapons systems and platforms being deployed by Pakistan. These reportedly include the HQ-9 and HQ-16 air defense systems, the J-10C fighter jets, PL-15 missiles and UAVs and UCAVs.

Chinese media, analysts and commentators have amplified the Pakistani narrative on the conflict. Many have taken the opportunity to praise the performance of Chinese weapons’ systems, particularly Chinese-made jets. There is a lot more information needed for a clear-eyed assessment of these matters. Right now, the noise is overwhelmingly drowning out the signal. The one point that, however, is clear is that Indian strikes deep in Pakistani territory will raise serious concerns about the Chinese air-defense systems exported to the country. Likewise, the impact of PL-15 missiles is something that the Indian side must assess more deeply. This dust on all this, however, is yet to settle. There is a lot that is still not known, and there is a lot still to unfold. And that information is necessary to grasp the political and strategic effects of the past week.

Another narrative from the Chinese side has been about the presence of Chinese troops along the Line of Actual Control with India in Eastern Ladakh. For instance, read this piece dated May 7, 2025, which makes the argument that the presence of Chinese troops is a deterrent. What’s interesting in this piece is the analysis of China’s diplomatic position. I might disagree with a lot in the piece, but I tend to concur with the authors’ view that early Chinese signalling was aimed at cautioning India when it came to its response to the April 22 terrorist attack in Pahalgam. In fact, in the early phase, Beijing refrained from terming that massacre of civilians in Jammu and Kashmir as a terrorist attack. This eventually changed, as I cover below.

Here’s an excerpt from the piece:

“Before India launched a military strike, Wang Yi, member of the Politburo of the CPC Central Committee and Foreign Minister, said in a phone call with Pakistani Deputy Prime Minister and Foreign Minister Dar: ‘As an iron-clad friend and all-weather strategic partner, China fully understands Pakistan’s reasonable security concerns and supports Pakistan in safeguarding its sovereignty and security interests’. After India launched a military operation, China’s remarks became more balanced, expressing regret for India’s military action and worrying about the current development of the situation, while calling on both India and Pakistan to give priority to peace and stability, remain calm and restrained, and avoid taking actions that further complicate the situation. To a certain extent, China’s remarks that it was more supportive of Pakistan before India’s action were probably a preventive statement made to prevent the situation from deteriorating and escalating. In essence, it was to persuade the stronger party not to take dangerous actions by supporting the weaker party. Once the Indian side took military action, and the action was overall relatively restrained, then the Chinese side no longer needed to issue a strong statement to prevent escalation, and instead returned to a more traditional position of promoting peace and encouraging dialogue. This subtle change in wording actually reflects China’s deep concern for regional affairs and its highly responsible attitude. Fortunately, Chinese troops have been stationed not far from Indian-controlled Kashmir since 2020, which is objectively the last guarantee of overall stability and peace in South Asia. After all, both India and Pakistan have to pay attention to China’s presence when escalating military operations.” 在印度发起军事打击前，中共中央政治局委员、外交部长王毅就在同巴基斯坦副总理兼外长达尔的电话中表示：“作为铁杆朋友和全天候战略合作伙伴，中方充分理解巴方合理安全关切，支持巴方维护自身主权和安全利益。”而当印方发动军事行动后，中方的发言就变得更加平衡——对印度的军事行动表示遗憾，对目前事态发展感到担忧，同时呼吁印巴双方以和平稳定大局为重，保持冷静克制，避免采取使局势进一步复杂化的行动。某种程度上，中国在印方行动前更加支持巴基斯坦的言论，很可能是一种为了防范局势恶化升级所作出的预防性表态，本质上是通过支持较弱的一方，劝服较强的一方不要做出危险的行为。一旦印方采取军事行动，而军事行动总体较为克制，那么中方就无需再以强硬表态防范局势升级，反而回到了更加传统的劝和促谈的立场。这种细微的言辞变化，其实体现出的是中国对于地区局势的高度关切和高度负责的态度。不幸中的万幸，中国军队自2020年就开始驻扎在离印控克什米尔不远的地方，这客观上也是南亚整体稳定和平的最后保证，毕竟不管是印度还是巴基斯坦，在升级军事行动的时候都不得不注意到中国的存在.

Another example of the narrative from Chinese analysts is Fudan University’s Lin Minwang’s piece in Global Times today. It essentially talks-up Pakistan, and engages in some rather fanciful fiction masquerading as analysis.

He writes:

“After this round of confrontation, Pakistan seems to have regained a lot of confidence. On May 7, Pakistani Prime Minister Sharif said in a speech in parliament: ‘Those who said that India was far ahead in conventional combat power finally woke up last night! Now they know that Pakistan also has conventional combat power, and we also have nuclear power’. After this battle, Pakistan may be more confident when facing India, and India’s international influence may change. After the terrorist attack in Kashmir, India quickly accused Pakistan of ‘supporting terrorism’ and wanted to ‘punish’ it, but ultimately exposed some weaknesses in its military confrontation with Pakistan, which may affect its influence among South Asian countries. In addition to South Asian countries, some non-regional countries may also reconsider their relations with India, such as the US. The US has always attached importance to its relationship with India, partly because it wants to use India as an important ‘strategic fulcrum’ in the US ‘Indo-Pacific Strategy’, so the US might pay close attention to India’s performance in the conflict and might adjust its policy orientation towards India accordingly. India may also be disappointed with the US. The Modi government has made many concessions to the new US government on many issues, but the US did not show ‘due’ support to India in this India-Pakistan confrontation. When Pakistan wanted to retaliate against India, US Vice President Vance publicly stated that the India-Pakistan conflict was ‘none of our business.’ The Indian side also noticed that mainstream American media gave prominent coverage to news of the Pakistani military shooting down an Indian aircraft. A series of actions by both sides are likely to become ‘mines’ in the future India-US exchanges. In addition, due to the shooting down of the French-produced Rafale fighter, the cooperation between France and India in the field of military trade may be affected.” 经过此轮交锋，巴基斯坦看上去恢复了不少信心。5月7日，巴基斯坦总理谢里夫在议会演讲时说道：“那些曾说印度在常规战力上遥遥领先的人，他们在昨晚终于清醒了！如今他们知道，巴基斯坦同样拥有常规战力，而且我们还拥有核力量。”经此一役，巴基斯坦在面对印度时可能更加自信，而印度的国际影响力或许出现变化。在克什米尔恐怖袭击事件发生后，印度迅速指控巴基斯坦“支恐”并要进行“惩罚”，最终却在与巴基斯坦的军事对抗中暴露出一些弱点，在南亚诸国的影响力可能因此受到影响。除南亚国家以外，一些域外国家或许也会重新考虑其与印度的关系，比如美国。美国一直重视同印度的关系，部分是因为想将印度作为美国“印太战略”中的一个重要“战略支点”，因此美方可能密切关注印方在冲突中的表现，并可能由此调整对印度的政策导向。印度方面对美国也可能会失望。莫迪政府曾在多个问题上对美国新一届政府作出诸多让步，然而美方却在这次印巴对抗中没有对印度表现出“应有”的支持。在巴基斯坦要对印度进行报复时，美国副总统万斯公开表示印巴冲突“不关我们的事”。印方还发现，美国主流媒体大肆报道巴军击落印度军机的新闻。双方的一系列动作，都很可能转化为未来印美交往过程中的“地雷”。此外，由于法国生产的“阵风”战斗机被击落，法印两国在军事贸易领域的合作可能会受到影响.

Lin ignores many facts, starting from the nature of US engagement and reported American concerns. For instance, this NYT report says:

The “most significant causes for concern (for Vance and Rubio) came late Friday, when explosions hit the Nur Khan air base in Rawalpindi, Pakistan, the garrison city adjacent to Islamabad. The base is a key installation, one of the central transport hubs for Pakistan’s military and the home to the air refueling capability that would keep Pakistani fighters aloft. But it is also just a short distance from the headquarters of Pakistan’s Strategic Plans Division, which oversees and protects the country’s nuclear arsenal, now believed to include about 170 or more warheads. The warheads themselves are presumed to be spread around the country…One former American official long familiar with Pakistan’s nuclear program noted on Saturday that Pakistan’s deepest fear is of its nuclear command authority being decapitated. The missile strike on Nur Khan could have been interpreted, the former official said, as a warning that India could do just that. It is unclear whether there was American intelligence pointing to a rapid, and perhaps nuclear, escalation of the conflict. At least in public, the only piece of obvious nuclear signaling came from Pakistan. Local media reported that Prime Minister Shehbaz Sharif had summoned a meeting of the National Command Authority — the small group that makes decisions about how and when to make use of nuclear weapons.” Note: If this was indeed what made Pakistan seek intervention, one needs to think about what the thinking will be in Rawalpindi now about protecting strategic assets.

Of course, Lin also ignores the fact that it was the Pakistani DGMO that made the request on Saturday, which eventually led to the ceasefire. Neither side is disputing this. In addition, it was very clear from every Indian briefing following the first strikes on the 9 terrorist targets on May 7 that New Delhi did not desire further escalation. In fact, in the press briefing last night, the Indian DGMO clearly said that a message was sent to the Pakistani side after the May 7 attack to that effect. Finally, let’s take a look at how Beijing responded to the ceasefire announcement.

Wang Yi reportedly spoke to Indian NSA Ajit Doval and Pakistan foreign minister Ishaq Dar.

The Chinese readout of the Wang-Doval call does not specify who asked for the call. It says:

“Ajit Doval said that the attack in Pahalgam area had caused serious casualties on the Indian side and that India needs to take counter-terrorism actions. War is not the choice of the Indian side, nor is it in the interests of either side. Both India and Pakistan will be committed to a ceasefire and look forward to restoring regional peace and stability at an early date. Wang Yi stated that China condemns the terrorist attack in Pahalgam area and opposes all forms of terrorism. In a changing and turbulent international environment, peace and stability in Asia are hard-won and deserve to be cherished. India and Pakistan are neighbors that cannot be moved away, and both are neighbors of China. China applauds Ajit Doval’s statement that war is not the choice of the Indian side, and sincerely hopes that India and Pakistan will remain calm and restrained, properly handle differences through dialogue and consultation, and avoid escalating the situation. China supports and expects India and Pakistan to achieve a comprehensive and lasting ceasefire through consultation, which is in the fundamental interests of both India and Pakistan and represents the common aspiration of the international community.”

The Chinese readout of the call with Dar specifies that Dar asked for the call. It then says:

“Giving an update on the conflict between Pakistan and India, Mohammad Ishaq Dar said that Pakistan is willing to achieve a ceasefire with India, but will not relax its vigilance, and will respond to any actions that violate its sovereignty and territorial integrity. Pakistan thanks China for its mediation efforts to achieve a ceasefire and cessation of hostilities and stands ready to maintain close communication with China and the international community.

Wang Yi said that as a neighbor of both Pakistan and India, China is concerned about the escalation of the conflict between the two countries. The conflict has caused civilian casualties on the Pakistani side, and China expresses its sympathies over this. China supports Pakistan in safeguarding its national sovereignty and dignity. China believes that Pakistan will respond to the current situation with calm and make decisions in line with its fundamental and long-term interests. China hopes for and supports an early ceasefire between Pakistan and India. Once a ceasefire is reached, it must be jointly observed to prevent the recurrence of conflict. This serves the interests of both Pakistan and India, contributes to regional peace and stability, and meets the common expectations of the international community. China is willing to continue playing a positive role in this regard. Wang Yi noted that Pakistan stands at the forefront of the international fight against terrorism and has made important contributions to the counter-terrorism efforts, and China supports Pakistan’s continued firm counter-terrorism actions. China believes that Pakistan will ensure the security and safety of Chinese personnel and institutions in Pakistan amid the current tensions.”

The interesting bit from this call for me is that Wang did not mention Pakistan’s territorial integrity. To Dar, Wang stressed the importance of observing the ceasefire, something that he did not mention to Doval at all.

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Turning to the People’s Daily today, there are a couple of noteworthy stories.

First, as was promised, the State Administration for Market Regulation has launched a three-year action plan to optimise the consumer environment. This covers five major actions:

• improving consumption supply quality

• optimising consumption order

• improving the efficiency of consumer rights protection

• co-governance of the consumer environment

• leading consumption environment improvement. These actions aim to further improve quality standards, credit constraints, comprehensive governance, consumer rights protection and other systems, focusing on resolving prominent issues strongly reflected by the public, and creating a reassuring consumption environment.

记者日前从国家市场监管总局获悉：优化消费环境三年行动正式启动，开展消费供给提质、消费秩序优化、消费维权提效、消费环境共治、消费环境引领等五大行动，进一步完善质量标准、信用约束、综合治理、消费维权等制度，着力解决群众反映强烈的突出问题，营造放心的消费环境.

Market regulation departments at all levels will take the lead in promoting the three-year action plan to optimise the consumer environment, focusing on six aspects:

• First, focus on implementing the pilot projects of the three-year action plan, with 48 pilot areas taking the lead in implementing 17 key tasks;

• Second, accelerate the cultivation of assured-consumption units and clusters, and to create a concentrated carrier for policy measures;

• Third, strengthen the comprehensive governance of the consumption environment, enhance supervision and law enforcement in the consumption domain, and explore monitoring and evaluation of the consumption environment;

• Fourth, innovate the credit system in the consumption field, using ‘digital + credit’ to promote ‘incentives + constraints’;

• Fifth, improve the efficiency of resolving consumer disputes, promoting prior reconciliation and diversified resolution;

• Sixth, strengthen organisational guarantees for the three-year action plan, enhancing government coordination and departmental collaboration, and consolidating joint efforts in building the consumption environment.

各级市场监管部门将牵头推进优化消费环境三年行动，重点做好六方面工作：一是突出抓好三年行动试点落地，48个试点地区要围绕17项重点任务先行先试；二是加快培育放心消费单元和集聚区，打造政策措施的集中载体；三是强化消费环境综合治理，加强消费领域监管执法，探索消费环境监测评价；四是创新消费领域信用体系，以“数字+信用”推动“激励+约束”；五是提高消费争议解决效能，促使先行和解、多元化解；六是加强三年行动组织保障，强化政府统筹、部门协同，凝聚消费环境建设合力.

Second, the PBOC on May 9th, announced (English report) that it has set up a relending facility for service consumption and elderly care. The relending facility quota is 500 billion yuan, and features an annual interest rate of 1.5 percent and a term of one year. Eligible applicants for the facility include 21 national financial institutions, such as policy banks and state-owned commercial banks, as well as five city commercial banks including Bank of Beijing and Bank of Shanghai. This relending facility will be in effect until the end of 2027. The PBOC said that it will encourage and guide financial institutions to beef up support for key areas in the service consumption sector, such as accommodation and catering, culture, sports and entertainment, and education, as well as the elderly care industry.

Finally, although it is not covered in the paper today, US-China trade talks in Geneva appear to have moved the needle forward a bit.

The US side has announced a “deal” but there are no details of this yet. Treasury Secretary Scott Bessent said that “we will be giving details tomorrow, but I can tell you that the talks were productive.” USTR Jamieson Greer added that:

“it’s important to understand how quickly we were able to come to agreement, which reflects that perhaps the differences were not so large as maybe thought. That being said, there was a lot of groundwork that went into these two days. Just remember why we’re here in the first place — the United States has a massive $1.2 trillion trade deficit, so the President declared a national emergency and imposed tariffs, and we’re confident that the deal we struck with our Chinese partners will help us to work toward resolving that national emergency.”

Zichen Wang’s Pekingnology newsletter has a full transcript of the Chinese press conference after the talks. Key points from my perspective:

• He Lifeng said that the talks were “candid, in-depth, and constructive. The meeting achieved substantial progress and reached important consensus. The two sides agreed on establishing a consultation mechanism for trade and economic issues, identify the lead persons on each side and we'll carry on further consultations relating to trade and economic issues of their respective concerns. The two sides will finalize relevant details as soon as possible and will issue a joint statement that was reached at the meeting on May 12th.”

• Li Chenggang added “at this meeting, the two sides agreed to establish a consultation mechanism on trade and economic issues. As far as the Chinese side is concerned, Vice Premier He Lifeng is going to be the lead person for China-US trade and economic affairs. And he's going to co-lead the. mechanism together with the U.S. lead person. Led by the lead persons on both sides, the working teams from both sides are going to have regular and irregular communications relating to trade and economic issues.”

• On the expected joint statement, Li ended with this idiom 好饭不怕晚 (implying that something worthwhile is worth waiting for) essentially indicating the Chinese side’s satisfaction with what was achieved at the meeting.