Chinese firms have a big presence in India, despite concerns about the neighbour’s designs. After HDFC Ltd announced that the Chinese central bank had raised its stake in the firm, India tightened rules on Chinese investments in India. Mint analyses if the worries are genuine.
How big is the Chinese presence in India?
China dominates our lives in unimaginable ways. Think tank Gateway House says that during the period April 2015-March 2020, of the 30 Indian unicorns (companies with over $1 billion valuation), 18 were funded by Chinese companies. ByteDance’s TikTok to Alibaba’s UC Browser, Diwali crackers to lighting lamps are all Chinese. This includes several mobile and fintech companies. Chinese exports of toys, steel, aluminium, glass, chemicals and bulk drugs have hurt Indian producers. China also tops the list of countries against which India is pursuing dumping cases, all sectors combined.
There are two instruments for foreign investment. Foreign direct investment (FDI) is more stable and strategic. Firms bringing FDI commit for a long term, unlike foreign portfolio investments (FPIs) made in the stock market mostly for financial returns. The commerce ministry’s department for promotion of industry and internal trade regulates FDI; the Securities and Exchange Board of India (Sebi) under the finance ministry oversees FPIs. Sixteen Chinese foreign portfolio investors are registered in India, with $1.1 billion invested in top-tier stocks. Chinese FDI in India is still small, at $6.2 billion, says Gateway.
How is India regulating foreign investments?
With an eye on China, the Centre has dropped FDI coming from neighbours from the automatic list. Earlier, barring Pakistan and Bangladesh, no neighbouring country’s investments needed the Centre’s nod. That has now changed. Sebi is asking custodians to furnish details of portfolio investments originating in 13 jurisdictions, including China and Hong Kong.
It seems so. The world’s second-largest economy has deep pockets. India’s suspicion of China stems from the 1962 war the two fought, the 2017 Doklam standoff being their last confrontation. China gives financial and military aid to Pakistan and occupies part of the country. Central banks have unlimited resources and their stake purchases can’t be equated to just another entity’s. The People’s Bank of China taking a stake in HDFC is to be treated differently, as a financial firm has systemic importance for the banking sector.
What other concerns are there about China?
Alibaba, ByteDance and Tencent have a big presence in the Indian startup ecosystem. Smartphone makers Xiaomi and Vivo, platforms TikTok and UC Browser have access to data of millions of users on a real-time basis. The worry is this data could land with Chinese authorities. But India should not shun Chinese investments. There should be greater scrutiny, but not an overkill. China has delivered on quality and service and leads in electric and green technologies. India would do well to encourage all that coming here.
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