Explanation:

The original sentence is erroneous.

Reason: The word ‘later’ means ‘at a time in the near future’ and is unsuitable in this sentence. The correct word to be used here is ‘latter’ which means ‘denoting the second or second mentioned of two people or things.’ Hence ‘latter’ should be used in place of ‘later’ to make the sentence grammatically correct.

Among the given choices, only option B replaces the given bold part most appropriately.

The sentence after replacement becomes:

Both the US and China are formidable world powers but India should side with the latter.

Option B is hence the correct answer.