Economy
Chinese FDI faces great wall in India as security fears rise
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a fraction of total foreign investment, with as many as 157 applications having been rejected by India, and 44 were withdrawn by Chinese investors, official data showed.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a fraction of total foreign investment, with as many as 157 applications having been rejected by India, and 44 were withdrawn by Chinese investors, official data showed.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.
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.
