The exquisiteness of India's naval diplomacy is that the objective of balancing is being undertaken through a policy of co-operation. With intense co-operation alone, New Delhi has been able to create a balance of power in the Indian Ocean. While on the one side India's apprehensions over China's string of pearls strategy in the Indian Ocean has woken up New Delhi to see these developments as a future threat, on the other side it is looking forward to improve bilateral co-operation with China through diplomatic and military engagement. Recently, the second round of India-China bilateral naval exercises was concluded in the Arabian Sea. It was the first time that Chinese forces joined manoeuvres in Indian territory. The first of this series was undertaken in the South China Sea in 2003. The India-China naval engagement reflects India's determination to move forward with the policy of regional co-operation. In an era of engagement, India will have to make all endeavours at the strategic level to balance China's power realistically, through the development of its own economic and military potential and by building stronger relationships with neighbours and regional organisations like ASEAN.