What's Changed in India's Approach to Chinese Investment & What's Not
Hi folks,
I hope this finds you well. I am in Paris this week till Saturday. If you are in town, and would like to meet for coffee, please drop me a line. It would be great to meet subscribers. Any recommendations on great dessert places would also be highly appreciated!
No regular newsletter today, but I put something together while in the immigration queue. It was long but orderly, allowing time to work. I think this would be of interest to anyone tracking the India-China relationship.
Cheers,
Manoj
There’s increasing discussion in the past few weeks on the changes in Indian investment policy vis-a-vis Chinese enterprises.
In late June, Bloomberg reported that:
“India is set to approve a roughly $370 million investment from Horse Powertrain Ltd., a hybrid-engine venture backed by China’s Zhejiang Geely Holding Group Co⁸ Renault SA, to invest in the French carmaker’s manufacturing operations in India, according to people familiar with the matter. Horse intends to build advanced hybrid powertrains and engines in the country, said the people, who asked not to be identified discussing private deliberations.”
Thereafter, last week, Indian Express reported that the Indian government has issued an order allowing four companies with Chinese ownership or links to bid for projects tendered by the Indian government in the power sector. The report said:
“The four firms — TBEA Energy, Nanjing Electric India, New Northeast Electric India and Taikai Electric (India) — have been exempted from the provisions of the public procurement rules…All four firms, which have been granted exemption, manufacture key power sector equipment such as transformers, wires, high-voltage switch gear, and gas-insulated switchgear which are used in transmission lines. In its website, New Northeast Electric India shows at least 11 transmission line projects across India.
Since early 2000, Chinese companies have made inroads into India’s growing power sector market, especially in supplying generation equipment for thermal power plants. During this period, China’s three major power generation equipment manufacturers, China Dongfang Electric Group, Shanghai Electric Group and Harbin Electric Group, had become bulk exporters to the Indian market.
Availability of Chinese tech and expertise has been crucial for Indian industry, especially in generation and transmission projects. Last year, the industry had sought an easing of the visa norms for Chinese technicians as several projects were stuck due to lack of expert manpower. Industry representatives had said the delay in visa approval is hurting the manufacturing industry including the leather sector which is increasingly shifting to sports footwear. Having imported and installed Chinese machinery, the domestic industry said it was unable to operationalise plants due to visa hurdles.”
In addition, just a few days ago, Indian Ambassador to China Vikram Doraiswami made a pitch for greater Chinese investment into India.
These changes come following a recent shift in India’s investment scrutiny policy in March 2026. So how does one make sense of this? Are the Dragon and Elephant doing the business tango? My new piece for the East Asia Forum unpacks the structural faultlines.
While you read it, do keep this recent Global Times report in mind.
“The Chamber of Chinese Enterprises in India said in a statement sent to the Global Times at that time that the adjustment in India's investment policy toward China is a ‘partial optimization’ rather than a ‘comprehensive liberalization’.
The statement suggested that, at least at that point, concerns among Chinese companies had not been fully addressed. If India truly wants to attract Chinese capital to give a boost to its economy, the country ought to remove all the restrictions imposed on Chinese investment.”
In March 2026, the Indian government eased investment restrictions imposed in 2020 that required government approval for any investment in which a beneficial owner was a citizen of, or located in, a country sharing a land border with India. This change was instituted following reports that the People’s Bank of China’s stake in HDFC Bank — one of India’s largest mortgage companies — had crossed the 1 per cent threshold.
The stated objective of the 2020 restrictions was to curb ‘opportunistic takeovers/acquisitions of Indian companies due to the current COVID-19 pandemic’. But with Beijing and New Delhi engaged in a border standoff from May 2020, investment scrutiny became part of a broader Indian pushback against China.
Six years on, both countries are seeking to rebalance the bilateral relationship. The 2026 changes permit investors with non-controlling beneficial ownership of up to 10 per cent from countries sharing a land border with India to enter through the automatic route, bypassing prior government approval. The changes also commit the government to deciding on proposals within 60 days in select sectors such as capital goods, electronic components and upstream inputs for solar cell manufacturing.
While this is a noteworthy shift in India’s treatment of investments routed through entities carrying limited and non-controlling Chinese stakes, it does not mark a fundamental rethinking of New Delhi’s economic approach or a strategic reset in its relationship with China.
Strategically, the current re-engagement between the two countries is better understood as an attempt to stabilise ties and prevent further deterioration. Structural fault lines — including competing regional interests, a deep power asymmetry, enduring political mistrust and Beijing’s perception of India through the lens of US–China rivalry — continue to weigh heavily on the relationship. New Delhi therefore appears to be seeking limited re-engagement to widen its strategic autonomy and serve its developmental interests. It is unlikely to accommodate China’s regional and global ambitions without some substantive concessions around its own aspirations, which Beijing appears unwilling to offer.
The rationale for the investment policy change appears to be to unblock global capital, not to open up to China. New Delhi has noted that the original framework adversely affected capital flows from global private equity and venture capital funds. It drew no clear line between strategic Chinese control and passive minority exposure through global vehicles, affecting funds domiciled in Singapore, Mauritius and the United States. The absence of clear approval timelines slowed dealmaking, prompting large global asset managers like BlackRock and Carlyle to lobby for the change.
The provisions encouraging joint ventures in identified sectors and fixing approval timelines can potentially benefit some Chinese investors. This is in line with the gradual easing in India’s approach towards China since October 2024, with direct flights resuming, more business visas being issued, increasingly frequent visits by industry and media delegations and the rolling back of some restrictions on Chinese entities’ involvement in public procurement. India’s exports to China were also up by 36.1 per cent year-on-year in the first five months of 2026.
Yet even with this gradual easing, several structural factors are likely to hinder the flow of Chinese capital into India.
The 2020 border standoff has influenced every domain of the relationship, bringing heightened scrutiny and legal action against Chinese companies operating in India. Chinese investors, wary of this political volatility, would likely seek legal protection — such as through a bilateral investment protection agreement — before committing serious capital. Such an agreement is unlikely given the present state of ties. New Delhi wants Chinese investment that expands its manufacturing capacity, without necessarily agreeing to a treaty that would affect a far wider set of sectors.
There is also some evidence of reluctance on China’s part to transfer manufacturing capacity. Increasingly, it appears that China is moving towards building a broader economic security architecture to sustain its supply chain dominance and regulate outbound investment. Beijing has already demonstrated that it is not averse to adopting a restrictive approach to capital, talent and equipment flows to India, potentially undermining the Indian industrial base and infrastructure development.
The geopolitical logic points the same way. Even as US–China ties rebalance under Trump 2.0, both sides are continuing to pursue de-risking as a way to shore up economic security. India has signed a wave of free trade agreements with US allies since 2022 and, as negotiations with Washington progress, New Delhi will remain cautious about Chinese investments that risk putting it in the crosshairs of the very markets it wants continued access to.
The investment policy change is also unlikely to redress India’s structural trade imbalance with China, which approached US$100 billion in the 2025 financial year. Even if India were to embrace broader Chinese investment in pursuit of manufacturing capacity, the near-term effect would likely be to widen the deficit. Like in Southeast Asia and Africa, Chinese investors in India have tended to outsource final assembly while keeping raw material and intermediate goods production within China. Meaningfully redressing the imbalance would require a longer-term effort to attract suppliers to India and build local alternatives.
For now, the investment reforms may ease some capital constraints, but they are unlikely to fundamentally change the economic terms of India’s relationship with China.