As Prime Minister Narendra Modi consolidates his power over the Indian political landscape, his government should not lose sight of the fact that China poses the most significant strategic challenge to India. India and China continue to be at loggerheads on a range of bilateral issues, as China shows no signs of budging on key issues that matter to India. Indian Foreign Secretary S. Jaishankar visited Beijing recently for the China-India Strategic Dialogue but nothing much came out of it. Though Jaishankar suggested that he came with “a very strong sense of commitment to maintaining our relationship” and China’s top diplomat, State Councillor Yang Jiechi, underlined that he believed relations had seen “positive growth” in 2016, it was evident at the end of the dialogue that the two sides have failed in bridging their fundamental differences.

There was no change in Beijing’s stance on blocking efforts to get Pakistan-based militant Maulana Masood Azhar listed as a terrorist under UN norms as well as its opposition to India gaining entry to the Nuclear Suppliers Group. New Delhi has also been left asking Beijing to explain how it can take part in the Silk Road summit being held in China when the $46 billion China-Pakistan Economic Corridor passing through PoK violates India’s sovereignty. And rather provocatively, Dai Bingguo, who served as China’s boundary negotiator with India from 2003 to 2013, recently suggested that the border dispute between China and India can be resolved if New Delhi accepts Beijing’s claim over the strategically vital Tawang region in Arunachal Pradesh. This was done knowing fully well that India would never agree to such a proposition and without specifying what concessions Beijing would be willing to make.

China’s reaction has been lukewarm to a new step proposed by India to help it become a permanent member of the powerful United Nations Security Council. Last week, India said that it was willing, in exchange for induction, to surrender the important veto right that permanent members are entitled to. India, along with Brazil, Germany and Japan—the G-4—has been calling for a change in the United Nations Security Council permanent membership in light of the changing global order. The Indian government continues to seek greater access to the Chinese market but with no real success so far. India has been pushing China to further open up sectors like software, pharmaceuticals and agricultural products. For the second year in a row, India’s trade deficit with China is set to cross the $50 billion mark in 2016-17, the highest with any single country.

There was some positive engagement on the unlikeliest of issues—Afghanistan. China reportedly expressed its admiration for India’s assistance efforts in Afghanistan and the two sides explored the possibility of joint development projects. This came against a backdrop of the growing threat of the Islamic State (IS) to China. The IS released a video recently of Chinese Uighur Muslims vowing to return home and “shed blood like rivers” even as the Chinese military displayed its military might as a show of force in Xinjiang. A rattled China is calling for greater global cooperation against the IS, which is also a reason why China has joined ranks with Russia in a bid to engage the Taliban in Afghanistan. But even on Afghanistan, there remain some major differences as the Foreign Secretary was careful to underscore. On the Taliban he suggested that “their (China’s) characterisation was that there were elements of Taliban which are very extreme. In their view there were also elements of Taliban that can work with international community and Afghan government.”

As Beijing and New Delhi struggle to manage their complex relationship, India has certainly become more nuanced in its approach in dealing with its most important neighbour. Even as it seeks to engage China on a range of issues despite differences, there is now a new realism in acknowledging and articulating these bilateral differences. The diffidence of the past has been replaced by a new self-confidence in asserting its vital interests vis-à-vis China.

This self-confidence is reflected in the manner in which India is gradually bringing Tibet and Taiwan in its bilateral matrix with China. Shrugging off Beijing’s protests, the Dalai Lama will be visiting Arunachal Pradesh, which China claims as part of its own territory, and where Indian government representatives will meet the religious leader. The Chinese government has suggested that the Dalai Lama’s visit will cause “serious damage” to China-India ties, as “China is strongly opposed to Dalai Lama visiting disputed areas”. Beijing argues that “the Dalai clique has long been engaging in anti-China separatist activities and its record on the border question is not that good.” India seems to be taking it in its stride. Beijing has warned India of “political consequences” if it interferes in the country’s internal affairs. Kiren Rijiju, Union minister of state for home affairs who is from Arunachal and is Prime Minister Narendra Modi’s point man on Tibetan issues, will be meeting the Dalai Lama, who is visiting the Buddhist Tawang monastery after an eight-year interval.

Taiwan is also now part of the Indian foreign policy discourse. A three-member women’s parliamentary delegation from Taiwan visited India last month amidst signals that the two sides might be getting serious about enhancing their bilateral engagement. The leader of the delegation, Kuan Bi-Ling, underscored that Taiwan is “totally independent”. She said that the One-China policy “is a de facto reality...We suffered a lot because of the One-China policy. We have crafted a pragmatic approach in our diplomatic engagement with major countries, including India, despite these difficulties.” This visit was in contrast to last year when India had reportedly backtracked from sending representatives to the swearing-in ceremony of then Taiwanese president-elect Tsai Ing-wen. China lodged a diplomatic protest with New Delhi asking it to deal “prudently” with Taipei-related issues so as to maintain sound Sino-Indian ties. India brushed off these protests from China, saying the trip was not a formal one.

China has been warning India for some time now not to fall into the “trap” of the US and Japan who are trying to use it to contain China, underlining that such a move may make New Delhi face more risks. “Washington hopes to use New Delhi to contain China in the Indian Ocean. Tokyo wishes to counter-balance China in the Pacific Ocean with the help of New Delhi,” Chinese media has suggested. Instead, “the best path for India’s development is to be more open to its neighbours and join regional development programmes such as the Belt and Road (Silk Road) initiative,” it has suggested. The attacks on India have grown considerably in the state-owned Chinese media, a reflection of nervousness in Beijing about India’s growing assertiveness.

What is clear is that Sino-Indian relations have entered uncharted territory as New Delhi seeks to engage Beijing strictly on reciprocity, resetting the terms of bilateral engagement. The future of the Asia, in more ways than one, depends on how the two regional giants relate to each other in the coming years. The Modi government wants to ensure that India is not the one to blink first.