MUMBAI: India’s easing of restrictions under Press Note 3 is showing early signs of reviving interest from Chinese investors, with tech giant Tencent signalling renewed appetite for the country’s digital economy.
“India is a vibrant ecosystem for technology innovation and entrepreneurship. We remain a committed partner to invest in and support collaborations and initiatives that foster India’s technology, video gaming, media and digital content innovation, and the broader digital economy in accordance with applicable laws,” a Tencent spokesperson told Mint.
The company trimmed or sold stakes in Indian portfolio companies including PB Fintech and Dream11 in recent years, amid India’s stringent foreign direct investment (FDI) rules.
The Union cabinet on Tuesday relaxed restrictions under the Press Note 3 (PN3), which mandated pre-approval for investments from countries that share a land border with India. According to an official statement, such investments will now be allowed through the automatic route up to 10% in a local firm, on the condition that the foreign investor must not exercise management control or hold a board seat. Besides, existing rules on sectoral caps, entry routes and other conditions will continue to apply.
The decision marks the first relaxation of Press Note 3 since it was introduced in April 2020 in the wake of tensions with China and concerns over opportunistic takeovers of Indian companies during the pandemic.
Ties between India and China had frayed following the clash in Galwan Valley in June 2020, the most serious military conflict between the two countries in decades. India subsequently banned more than 200 Chinese mobile apps, including TikTok, WeChat and Alibaba’s UC browser.
The PN3 regime effectively shut out fresh Chinese capital and left several investment plans on hold.
Cumulative FDI equity inflows from China into India stood at $2.51 billion between April 2000 and March 2025, according to data from the Department for Promotion of Industry and Internal Trade (DPIIT).
Since PN3 came into effect, Chinese venture investments in India have fallen sharply. According to data from Venture Intelligence, deal activity dropped to 10 deals worth $780 million in 2022 from 17 transactions worth $5.2 billion in 2021. The slowdown continued in subsequent years, with three deals worth $276 million in 2023, four deals worth $282 million in 2024, and three deals worth $170 million in 2025.
So far in 2026, only one deal has been recorded.
Deal activity revival
Industry executives said the relaxation could revive stalled deals and help global investment funds with Chinese limited partners participate more easily in Indian transactions.
"The move is certainly encouraging as we would now expect more borderline investors to participate in India. In general, funds in India can now operate with greater regulatory and structural clarity. While this may not translate to an immediate capital rush, we expect to see some improvement,” Ashley Menezes, vice chairperson, Indian Venture and Alternate Capital Association, and partner and chief operating officer, ChrysCapital, told Mint.
“Numerous regulatory challenges that previously necessitated months of approval may now be mitigated, potentially leading to increased capital inflow and reduced deal uncertainty. Additionally, many M&A activities or deals that were paused due to the nationality of certain minority shareholders of one of the entities, may gain momentum in accordance with the new regulations,” Menezes added.
Ravi Shah, partner at Cyril Amarchand Mangaldas, said the decision to fast-track proposals could enable more cross-border joint ventures where Indian partners retain majority ownership and control, though full clarity will depend on the detailed notification.
Tencent has backed firms including Swiggy, Byju’s, Dream11, Udaan and PolicyBazaar.
Other Chinese investors active in India include Shunwei Capital, Alibaba, Hillhouse Capital and Qiming Venture Partners, which have periodically trimmed or exited stakes in companies such as Pratilipi, Koo, Paytm and Zomato.