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Breakingviews - India erects low wall against Chinese money

April 22, 2020

Editor’s note: All China FDI into India will now require govt approval. The US should do the same. 

MUMBAI (Reuters Breakingviews) - The Great Wall against Chinese acquisitions is extending into India. Foreign direct investment from the People’s Republic will now require government approval, which could slow development in key areas like technology. Compared to similar policies enacted by Australia and Italy post-Covid-19, Indian policy is more narrowly aimed at Beijing. New Delhi remains hungry for capital, so this signals the door is open to buyers from elsewhere.

[Una Galani | April 20, 2020 | Reuters]

Technically the policy does not name China; the limits apply to countries sharing a land border with India. Nevertheless it is the obvious target. The development comes after a skittish domestic reaction to news that the People’s Bank of China had increased its shareholding in top mortgage lender HDFC to just over 1% earlier this month. That’s hardly a threat, but it fed anxieties that the Chinese economy will recover first, and make opportunistic purchases.

Domestic policymakers have been fretting about ties for some time. China is a top trading partner, but the relationship is skewed. Around 80% of the nearly $90 billion in annual bilateral trade the two countries is comprised of Indian imports, in particular machinery and equipment. Mainland FDI amounts to $2.34 billion, or less than 1% of inflows since 2000, according to official Indian figures, although funds are often routed through Hong Kong and elsewhere. The real number might be closer to $6.2 billion, reckons Gateway House, a Mumbai think-tank.

Any stall in Chinese inflows would be most keenly felt in the technology sector. Paytm, a local fintech giant, has grown fast with backing from Alibaba and its affiliate Ant Financial. Tencent has invested in education tech firm Byju’s, food delivery platform Swiggy and more. But as elsewhere, Indian officials are alert to the value of personal data and worry about it falling into the wrong hands.

The poor emerging market can’t afford to spurn job-creating investments from whatever source. India is betting that Chinese companies like MG Motors and Xiaomi looking for the next big growth market won’t be too deterred, and that in the context of a wider international backlash, Beijing’s retaliation will be limited.

Reuters Breakingviews is the world's leading source of agenda-setting financial insight. As the Reuters brand for financial commentary, we dissect the big business and economic stories as they break around the world every day. A global team of about 30 correspondents in New York, London, Hong Kong and other major cities provides expert analysis in real time.

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