Chinese FDI faces great wall in India as security fears rise (2024)

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Economy

Ravi Dutta Mishra 2 min read 07 Jun 2023, 10:22 PM IST

Summary

FDI from China makes up only a fraction of total foreign investment, with as many as 157 applications having been rejected by India, and 44 were withdrawn by Chinese investors, official data showed.

New Delhi: India approved less than a quarter of the total 435 foreign direct investment applications from China since April 2020 when the government tweaked the FDI policy to check opportunistic takeover of Indian companies, according to official data seen by Mint.

The policy was changed during the covid-19 pandemic when valuations of companies were at a record low. The same year saw tensions rise between India and China after clashes in Ladakh’s Galwan.

Official data showed that India has given a go-ahead to 97 of the total 435 applications for FDI approval from China since India amended the FDI policy under ‘press note 3’ in April 2020 that made the government’s prior approval mandatory for foreign investments from countries that share a land border with India.

FDI from China makes up only a fraction of total foreign investment, with as many as 157 applications having been rejected by India, and 44 were withdrawn by Chinese investors, official data showed.

Globally too, Chinese investments are increasingly seen as a security risk, especially in strategic sectors such as telecommunications. Several western countries have blocked a major Chinese telecom company over fears of cyber espionage.

Reuters on Wednesday reported that the European Union is considering a mandatory ban on member states using companies that might pose a security risk in their 5G networks, including China’s Huawei Technologies Co Ltd.

Notably, India’s service, telecom, computer software & hardware, trading and automobile sectors are among the industries that have received the highest FDI inflow in the past few years, with the top sources being Mauritius, Singapore, US, UAE, Cayman Islands and the Netherlands.

“The government’s position is to decouple from China. With regard to trade, there is little that they can do because it’s driven by market forces. So, the 2020 policy to regulate investment from neighbours will continue to be used. Apart from the bilateral problems that are there, India is part of regional and security formations such as the Indo-Pacific Economic Framework for Prosperity and Quadrilateral Security Dialogue. So, easing of tensions is unlikely," Biswajit Dhar, professor, Jawaharlal Nehru University said.

Mint had earlier reported that the US will help India develop standards for goods and services and train workers in sectors of strategic interest such as semiconductor manufacturing, as part of the Indo-Pacific Economic Framework (IPEF) agreement on supply chain, aimed at cutting reliance on China and fixing supply chain gaps. Meanwhile, India is expected to host the US, Australia and Japan next year for the Quad summit.

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Dhar said continued restrictions on Chinese investments will not mean much in substantive terms as China is not a significant contributor to the FDI inflow, which means the Indian economy won’t be hurt due to the policy. According to the ministry of commerce & industry, China stands at 20th position with only 0.43% share or $2.45 billion total FDI equity inflow into India during April, 2000 to December, 2021.

“Allowing the Chinese to come through the equity route actually means allowing them to control the means of production, which is something that the Indian government aims to regulate. And this step is in the right direction," Madan Sabnavis, Chief Economist, Bank of Baroda said.

India is also cracking down on Chinese companies trying to bypass government policy by forging ties with Indian shell companies to access subsidies, especially in the rapidly growing electric vehicle market.

Queries sent to the commerce ministry and external affairs ministry remained unanswered till press time.

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As an expert in foreign direct investment (FDI) trends and policies, I can provide valuable insights into the article you shared. My expertise stems from a deep understanding of global economic dynamics, FDI regulations, and the geopolitical landscape. I've closely followed developments in FDI, especially in the context of India and China, and I can demonstrate my knowledge by dissecting the key concepts mentioned in the article.

The article discusses India's approach to FDI from China, highlighting that less than a quarter of the 435 FDI applications from China have been approved since April 2020. This change in policy occurred during the COVID-19 pandemic, coinciding with tensions between India and China after clashes in Ladakh’s Galwan. Here are the key concepts covered in the article:

1. FDI Policy Change in 2020:

   • The Indian government amended the FDI policy under 'press note 3' in April 2020.
   • This policy made the government's prior approval mandatory for foreign investments from countries sharing a land border with India.

2. Approval Statistics:

   • India approved only 97 out of the total 435 FDI applications from China since the policy change.
   • Official data indicates that 157 applications were rejected by India, and 44 were withdrawn by Chinese investors.

3. Global Perception of Chinese Investments:

   • The article notes that globally, Chinese investments are increasingly viewed as a security risk, particularly in strategic sectors like telecommunications.
   • Some Western countries have blocked Chinese companies due to concerns about cyber espionage.

4. FDI Contribution and Ranking of China:

   • FDI from China constitutes only a fraction of total foreign investment in India.
   • China stands at the 20th position in terms of FDI equity inflow into India, with a share of 0.43% or $2.45 billion.

5. India's Efforts to Decouple from China:

   • The Indian government aims to decouple from China, especially in the context of trade and investment.
   • The policy to regulate investments from neighboring countries, initiated in 2020, continues to be employed.

6. Strategic Sectors Receiving FDI:

   • Sectors such as service, telecom, computer software & hardware, trading, and automobile have received the highest FDI inflow in India.
   • Top sources of FDI include Mauritius, Singapore, the US, UAE, Cayman Islands, and the Netherlands.

7. Geopolitical and Regional Context:

   • India is part of regional and security formations like the Indo-Pacific Economic Framework for Prosperity and Quadrilateral Security Dialogue.
   • Easing tensions between India and China may be challenging, according to Biswajit Dhar, a professor at Jawaharlal Nehru University.

8. International Collaboration to Reduce Reliance on China:

   • The US is set to assist India in developing standards for goods and services and training workers in strategic sectors as part of the Indo-Pacific Economic Framework.

9. Crackdown on Chinese Companies:

   • India is taking measures to crack down on Chinese companies attempting to bypass government policy, especially in sectors like electric vehicles.

10. Expert Opinions:

    • Experts, such as Madan Sabnavis, Chief Economist at Bank of Baroda, support continued restrictions on Chinese investments as a means to regulate control over the means of production.

In summary, the article sheds light on India's cautious approach to FDI from China, considering geopolitical tensions and security concerns, with a focus on regulating strategic sectors and reducing dependence on Chinese investments.