China investments come under greater scrutiny

Investments from China have been under heightened government scrutiny even before the 15 June Ladakh border clash, two officials aware of the matter said, with an elaborate protocol in place to evaluate them.

In October, the Union home ministry had raised concerns about potentially sensitive investments in critical sectors from ‘certain countries’, given the blurred ownership lines between state-owned and privately held companies in China. Without naming China, the ministry raised concerns over such investments under the automatic route, and sought their scrutiny given security imperatives.

As a stock market crash amid the coronavirus lockdown raised the threat of opportunistic acquisitions by Chinese companies, the government on 18 April made its clearance mandatory for all foreign direct investment (FDI) inflows from countries with which it shares land borders. The state-owned Dedicated Freight Corridor Corp of India Ltd (DFCCIL) on Thursday decided to end a signalling and telecommunication contract worth ₹471 crore with Beijing National Railway Research and Design Institute of Signal and Communication Group, citing ‘poor progress’.

Queries emailed to spokespersons for India’s home ministry and the Chinese embassy in New Delhi remained unanswered.

The home ministry’s concern stems from the fact that such investments are planned for sensitive geographies and in strategic sectors.

There have been instances when India declined to clear telecom equipment imported from China after security concerns were raised by the home ministry and the Prime Minister’s Office. India had also imposed import duty on power generation equipment from China.

“We have been particularly suspicious of investments from China in sectors such as telecommunications and power as they are of strategic importance,” the first of the two officials cited above said.

India’s power sector is facing at least 30 cyberattacks every day, most of them from China, Singapore, Russia and Commonwealth of Independent States (CIS) countries, Mint reported earlier. The Intelligence Bureau had warned the government in 2009 that substations and regional load despatch centres, both key components of power network, could be targeted. Substations play a critical role in the generation, transmission and distribution of power.

“Given the nature of such projects and proposals, they are forwarded to the home ministry for seeking clearance,” the second official said.

The home ministry has framed a comprehensive standard operating procedure to provide security clearance to such companies and proposals.

Mint reported on Thursday about India exploring restrictions on Chinese portfolio investments in its equity markets.