India adopting softer stance on Chinese investments in select industries?

Chinese investments in India's electronics manufacturing and automobile sectors are witnessing relatively faster security clearances compared to other areas such as private equity and pharmaceuticals, which continue to experience prolonged approval timelines.

According to multiple government and industry sources cited by Moneycontrol, the Central government has been more receptive to Chinese technology firms operating in the electronics domain. In contrast, investment proposals in other sectors continue to face scrutiny and extended waiting periods.

Over the past few months, several Chinese technology companies have received security clearance from the Indian government, with more approvals reportedly in the pipeline. Among recent clearances, the government last year approved Micromax-owned Bhagwati’s joint venture with Chinese original device manufacturer (ODM) Huaqin. Similarly, Dixon Technologies received approval to acquire a stake in Ismartu India, a subsidiary of China’s Transsion Technology Ltd.

Dixon has now entered into agreements with China’s HKC and Vivo to establish joint ventures to manufacture display modules and smartphones, respectively. These approvals are granted under the regulatory framework of Press Note 3, introduced in 2020 to monitor foreign investments from neighbouring countries, particularly China.

Additionally, the government has approved the joint venture between India’s JSW Group and China’s SAIC Motor to manufacture electric vehicles (EVs) under the MG brand. SAIC Motor, a Fortune 500 company with annual revenues of approximately $110 billion, has a presence in over 100 countries.

Industry estimates indicate that in 2024 alone, the Indian government received 526 foreign direct investment (FDI) applications from Chinese investors. Of these, 124 were approved, 201 rejected, and 200 remain pending.

While an official response from the department for promotion of industry and internal trade (DPIIT) is awaited, sources suggest that the government is adopting a calibrated approach. It is prioritising sectors such as electronics manufacturing, where China holds global expertise, while maintaining strict scrutiny in others, particularly financial services and lending.

Government officials emphasise that collaborations with Chinese firms in the electronics sector are driven by India’s strategic objectives. China’s leadership in electronic components and manufacturing makes it a crucial partner in India’s efforts to develop a strong domestic manufacturing ecosystem.

“The China +1 strategy in the non-semiconductor segment positions India within the global value chain, and joint ventures are the way forward,” a government official was quoted as saying.

Another source highlighted that China built its industrial base by manufacturing for global brands, mastering technology, and eventually becoming an industry leader. India, in turn, aims to leverage a similar approach by encouraging domestic firms to collaborate with Chinese technology leaders.

Despite approvals in select manufacturing sectors, Chinese investments in India’s financial services sector remain highly restricted. The government remains cautious about allowing Chinese firms in lending and fintech due to systemic risks.

Following the border clashes between India and China in 2020, Press Note 3 mandated prior government approval for all Chinese investments, and Indian authorities have since cracked down on certain lending apps linked to Chinese entities.

“Startups seeking investment are now increasingly looking towards Europe or the U.S. instead of Hong Kong-based funds, as getting clearances from the government has become challenging,” an industry source noted.

While the Economic Survey for FY24 suggested relaxing Press Note 3 to enhance India’s participation in global supply chains, the government has yet to introduce any formal changes to these restrictions