Every recent India-China diplomatic engagement has followed a familiar script: a summit, a handshake and headlines about potential billions in investment once bilateral issues are resolved.
The 18th Brics Summit, scheduled for 12-13 September in New Delhi, comes soon after the Shanghai Cooperation Organization summit in Bishkek, attended by heads of state including those of India and China. While a visit by Chinese President Xi Jinping for the Brics conclave hosted by India is expected but not officially confirmed, the machinery of economic re-engagement on both sides of the border is already moving.
Reports suggest that India and China are exploring an ambitious framework comprising a special economic zone with easier sea-route access and an export-processing zone in India funded by Chinese capital to serve third-country markets.
Indian officials are also examining a further easing of approvals for Chinese investment in non-strategic sectors, while barring it from sensitive sectors (with national-security implications) and projects along the border.
Any such opening, however, will require considerable trust-building and regulatory easing on both sides. India recently clarified and partly relaxed its framework for Chinese capital, but Beijing has simultaneously tightened controls on outbound investment and cross-border economic engagement.
This moment is significant because India had almost fully shut out Chinese capital for the preceding five years through Press Note 3 of 2020, which required government approval for investments from countries sharing a land border with India. In March, the Indian government partially relaxed this regime through Press Note 2 (2026 series).
Investors from contiguous countries can now take non-controlling beneficial ownership of up to 10% in Indian ventures via the automatic route, subject to sectoral caps under India’s foreign direct investment policy (FDI).
A fast-track approval mechanism, with decisions due within 60 days, has also been introduced for certain manufacturing sectors, including electronic components, electronic capital goods, capital goods, polysilicon and wafer production.
The intent is clear: address supply disruptions, access technology and improve India’s manufacturing competitiveness, thus providing market relief and re-affirming policy support for domestic electronics manufacturing.
Recent approvals under Press Note 3 have widened beyond footwear and textiles to electronics manufacturing, renewable energy, financial services, real estate advisory and cross-border power transmission.
Yet, executing a Chinese investment in India faces an obstacle course. The 10% beneficial ownership threshold appears simple, but the control test applies separately.
A fund with a 5% Chinese limited partner, even if coupled with a board seat or contractual influence over management, could require government approval. The 60-day fast-track mechanism is limited to six specified manufacturing sectors and applies only where investment does not exceed 49% of capital or voting rights.
For most Chinese investments, the standard 12-week timeline under the Department for Promotion of Industry and Internal Trade’s revised Standard Operating Procedure of 4 May applies; in practice, timelines may extend further.
What is often missed is that China has been tightening its own grip on outbound capital. On 1 July, Premier Li Qiang enacted State Council Decree No. 837, China’s first administrative regulation to govern outbound investment. The decree subjects technology, capital and management rights moving out of China to stricter scrutiny, with a particular focus on data governance and geopolitical risk.
Article 13 restricts the transfer of restricted technologies, data and services, including deploying engineers abroad and conducting cross-border training or staffing overseas operations with Chinese personnel who have proprietary knowledge.
The legal framework on the Indian side for capital flows is now better structured, but the political risk premium remains high. Every relaxation is contingent on the broader India-China relationship. A border incident, stalled boundary talks or wider geopolitical escalation could re-freeze the approval pipeline, regardless of formal notifications.
India’s trade deficit with China is another pressure point. According to data placed in the Rajya Sabha, India’s imports from China in 2025-26 reached $132 billion, its highest from any single country, making up nearly 17% of India’s merchandise imports, the highest share in five years. India is seeking greater access to China’s market for its industrial exports while demanding firmer guarantees for the Chinese supply of critical raw materials.
For Chinese firms, life-cycle compliance under Decree No. 837 is now unavoidable. This is particularly relevant for electric vehicles, electronics, semiconductors and renewable energy—precisely the sectors where India-China collaboration is being encouraged. India wants to import technology but China’s new regime restricts its export.
Dealmakers will hence need creative structures for intellectual property contribution, voting rights, licensing and secondment arrangements that satisfy both India’s FDI policy and China’s export controls. Whether political will can turn this framework into a mutually beneficial deal is yet to be seen.
While headline investment pledges are likely to emerge from the summit, what matters is how quickly regulators on both sides will enable actual transactions.
The authors are, respectively, partner and principal associate, Cyril Amarchand Mangaldas.