India Cancels Railway Contract with State-Owned Chinese Firm amidst Border Tensions and Rising Scrutiny of Chinese Deals Across Sectors

On June 18, state-owned Indian Railways announced the termination of a $61 million railway construction contract signed with China’s state-owned Beijing National Railway Research & Design Institute of Signal & Communication in 2016.  Officially, Indian rail authorities have denied that the cancelation is prompted by current border tensions between the two countries, instead citing significant implementation delays and technical non-transparency as the cause.

Still, the Indian Railways decisions arrives amid a flurry of scrutiny of Chinese projects by Indian officials and civil society that appear to be motivated by ongoing geopolitical tensions.  This week, the Indian government also directed India’s state telecommunications operator, BSNL, to exclude Chinese vendors from their tender for 4G rollout – a move speculated to be a precursor to Huawei’s eventual removal from India’s upcoming 5G trials.

A number of other recent industrial/infrastructure contracts awarded to Chinese firms by state governments across India have been criticized within the media and civil society, with growing calls to revisit their decisions to award contracts to Chinese companies.  Escalating border tensions have intensified this trend.  Some of these projects are as follows.

  • Critics are calling for the withdrawal of a decision by Indian rail authorities to award a railway construction contract to Shanghai Tunnel Engineering Co., which emerged as the lowest of five multinational bidders on June 12 for construction of an underground section of the Delhi-Meerut Rapid Rail Transit System (RRTS) – a project seeking to connect the city of Meerut to India’s capital.  The bid remains under a governmental evaluation process and a final decision is pending.  Media speculation suggests that the project could be at risk, given current national security considerations in New Delhi.
  • Almost immediately following the signing of an MoU on June 15 between the state government of Maharashtra and China’s Great Wall Motors for the latter’s $1 billion investment in the modernization of an automobile plant, the state agreed to revisit this decision.  The state government also signed MoUs for investment in the same plant from China’s Hengli Engineering and PMI Electro Mobility (a joint venture with  China’s Foton Motor Company).

In March 2020, the discreet increase in equity position in HDFC Bank, India’s largest private mortgage lender, by the People’s Bank of China raised alarm among government officials that eventually prompted the issuance of a stricter FDI policy by New Delhi that seeks to screen foreign investments, particularly by Chinese firms.  The aim of the measure is to mitigate Chinese predatory investments in distressed Indian assets.  Since, there has been growing calls to further scrutinize Chinese investments in various facets of Indian industry, particularly as bilateral tensions between the two countries escalates.  The newest Chinese infrastructure deals under scrutiny were initially touted as critical for job creation in a COVID-distressed economy.