Tensions flared between India and Pakistan in February after a bomb attack on a bus in India-administered Kashmir killed over 40 Indian paramilitary soldiers. The Pakistani Islamist militant group Jaish-e-Mohammad (JeM) claimed responsibility for the attack.

After the incident, India renewed demands that Pakistan crack down on homegrown terrorism and hand over JeM's leader, Masood Azhar. The Islamist ideologue and the JeM are thought to be responsible for several terror attacks in India, including a 2001 attack on the Indian parliament in New Delhi, and a 2016 strike on an air base in the northwestern city of Pathankot that killed 17 people and injured dozens.

Read more: What is Jaish-e-Mohammed?

India has repeatedly called on the international community to designate Azhar as a terrorist. On February 27, France moved a proposal to designate Azhar as a terrorist and impose sanctions under the UN's al Qaeda sanctions committee.

All permanent members of the United Nations Security Council (UNSC) except one ­– China - endorsed the designation. For New Delhi, China's resistance is further proof that Beijing is politically aligned with Islamabad.

But Beijing said there was not enough evidence against Azhar and that a "thorough investigation" was needed. As the UNSC considers what to do next, Azhar's importance for Beijing has come under the spotlight.

China's interest in Pakistan

Beijing repeatedly asserts that it is against terrorism, but justified its UNSC vote by saying there wasn't enough evidence against Azhar while citing "procedural problems" with the UNSC.

According to Liu Xiaoxue, an India expert at the Asia-Pacific Institute of the Chinese Academy of Social Sciences, lack of evidence is a common issue with attacks thought to be carried out by JeM.

Read more: China presses Afghanistan-Pakistan rapprochement

"Whenever an attack happens, India always immediately says that it was directed by Azhar's organization, but gives no evidence. Every time a similar incident occurs, India immediately accuses Pakistan, but cannot produce evidence," said Liu.

Beijing's apparent closeness with Islamabad also has an economic motivation. According to Christian Wagner of the German Institute for International and Security Affairs (SWP) in Berlin, the Pakistani army is an essential partner for China in developing the China-Pakistan Economic Corridor (CPEC), a massive infrastructure initiative worth tens of billions of dollars.

"For China, the army is a more dependable partner compared to elected governments," he said, adding that if China voted to designate Azhar as a terrorist, it could negatively impact Beijing's relations with Pakistan's army.

The economic risks of terrorism

But Wagner pointed out that the geopolitical situation has changed and the Pakistani army now has to decide on its strategy vis-à-vis militants before China will take its own stance.

"What is the purpose of these groups, if they lead to Pakistan's inclusion in the Financial Action Task Force's blacklist? What consequences would that have on the financial markets?" said Wagner, adding that the Pakistani military is realizing the importance of strategic stability for economic growth.

Read more: Pakistan says 'action being taken against Jaish-e-Mohammed' militant group

For Pakistan, financial restrictions from the international community would cause severe damage. "The West, especially the US, has a lot of influence over all financial institutions. If the US and India decide to do something against Pakistan, then Pakistan may face difficulties in getting assistance from those financial institutions," Pakistan's former finance minister, Syed Salman Shah, told DW.

Nevertheless, China's objection at the UNSC may have more to do with India than with Pakistan, economist Azra Talat Saeed said.

Read more: China pledges aid to Pakistan amid financial crisis

"If China has blocked declaring Masood Azhar a global terrorist it is because of its confrontation with India, not because of its affection with Islamabad," said Saeed.  "India's growing closeness with the US and its support for Tibetan leader Dalai Lama are also reasons why China does not support India," the expert added.

While geopolitical rivalry prevents China and India from reaching an agreement, tensions between India and Pakistan seem to have subsided. New Delhi is keen on pursuing Azhar internationally rather than engaging in a direct confrontation with either Pakistan or China. This strategy seems to have helped somewhat and France has frozen Masood's assets. Paris is also attempting to place him on an EU list of terror suspects.

Read more: Nuclear fears abound after India-Pakistan military escalation

A 'test' for India

Dhruva Jaishankar, a fellow at Brookings India, told DW that designating Azhar as a terrorist is extremely important for India, even if the move will mostly be a symbolic gesture. Pakistan has not cracked down on designated groups in the past and Jaish-e-Mohammad is already listed," Jaishankar said.

A terrorist label for Azhar may not bring immediate results for New Delhi or enable Indian officials to arrest or capture him. However, designating him as a global terrorist will be "a key test of the international community's willingness to take terrorism against India seriously," Jaishankar added.