Anticipating greater control of Chinese investors or eventual hostile takeover, the government of India changed the norms of investment from China. The new rule also applies to third party investment if it is funded partly by China. On Monday, the Embassy of China in New Delhi issued a statement asserting “The development of the Indian industries including mobile phones, household electrical appliances, auto and infra sector which have created jobs in India is due to the Chinese investments.” The statement issued by the spokesperson of the Chinese embassy, has expressed hope that India “Would revise relevant discriminatory practices, and treat investments from different countries equally. And foster an open, fair and equitable business environment.”
Till last December, according to the statement their cumulative investment in India has exceeded $ 8 billion in comparison to other neighbouring countries.
What is the Revised FDI Policy?
Last week, in the revised Foreign Direct Investment Policy (FDI), the Department for Promotion of Industry and Internal Trade (DPIIT), now all investments coming in from countries with which India shares borders, have to get the governmental approval.
This was done to ensure there are no hostile takeovers due to deteriorating market and economic conditions due to the spread of COVID-19.
What does it mean?
The foreign investments from other countries can come in through the automatic route in sectors which are open to FDI. Now, with the amendments made last Saturday, if goods made from investors in China and other six neighbouring countries, government approval is needed. This restriction was in place only for Pakistan and Bangladesh earlier.
Prof Rajan Kumar, School of International Studies, JNU, tells Financial Express Online that “Such policies are not uncommon in the times of economic distress and many of the European countries imposed such restrictions after the economic recessions of 2007-8. India is not the first country to do this; it is only reflecting a general global sentiment. Many of the other countries are also likely to firewall hostile investments from China.”
There is a rising concern that China may take advantage of falling share prices in companies with prospects of resurgence. Given the liquidity crunch and rising debt, many of the companies will find it service their debts and sustain services in the months to come. This may lead to a hostile takeover by foreign entities.
In his opinion, “In the case of China, the distinction between the government and the private entities are not very clear. Many of the private investments are backed by the government which gives an unfair advantage to Chinese companies vis-à-vis other companies. A private entity in other countries finds it difficult to compete against the state-backed Chinese companies.”
As expected, the embassy of China criticizes the new Indian law which seeks to regulate direct or indirect investment from China. It also alleged the violation of WTO rules on unrestricted trade and investment. But China itself has not been very fair in allowing products from other countries. Just a few months earlier, President Trump forced China to reduce tariffs on import of US products worth $200 billion. China also imposes unreasonable restrictions on movement of service professionals in its territory.
According to Prof Kumar, “India has to play its game carefully because some experts fear that restricting investment from China may only add to the existing resource crunch. With a widespread recession in the US and Europe, there may not be many investors from those countries. China, Japan and the Gulf States may help overcome the liquidity crunch to starving companies.”
At a larger level, what we are witnessing is a rising wave of myriad protectionism in different fields. The emerging economic order is going to be very different from what we are used to in the last three decades. “A process of de-globalisation is unfolding, and China will also react in its own way,” he cautions.
Sharing his views, Ranjit Kumar, Senior Journalist and China watcher, says “At a time when Chinese State apparatus is embroiled in worldwide controversy in displaying alleged opaque behaviour and less transparency in dealing with COVID-19 pandemic in its city of Wuhan , the greedy Chinese enterprises in collusion with the State are not doing credit to the image of their country.”
In his opinion, “China has overreacted by levelling allegations of discriminatory practices, on India’s revised foreign investment policy. The European economies are similarly worried and India’s actions cannot be dubbed as anti-China. First there were reports of Chinese companies aggressively trying to take over the business houses in European countries and now they have put their footprints on Indian soil also, Like European countries Indian government has truly been alarmed over the reports of acquisition of over one per cent of shares of Indian financial giant HDFC. There are reports of over US$ 26 billion acquisition plans by Chinese companies in India. The Indian government took a swift action by putting in place new Foreign Investment rules, which indirectly will deny the Chinese companies to automatically sit over the management of Indian companies, as they have earlier tried to do in case of Indian online payment and e-commerce platforms”.
“Though the market meltdown in the wake of corona pandemic has come as a shock to the investors, but probably it is a welcome development for moneyed tycoons, who can park their overflowing cash in a depressed market which is bound to rebound sooner or later. The Chinese enterprises are doing exactly the same and are planning to buy stocks at attractive prices.”