India Implements Foreign Investment Screening to Curtail Chinese Investment in Distressed Indian Assets During Pandemic

On April 18, the Indian Ministry of Commerce announced new restrictions on foreign direct investment that are widely perceived to be an effort to curtail Chinese investment in distressed Indian companies and assets amid the coronavirus pandemic. The new regulation stipulates that any entity tied to a country that shares a land border with India (namely, China) would require government approval for any planned investment in an Indian entity. Another reason why this measure is viewed as targeted at Chinese companies is that such restrictions already exist for Bangladeshi and Pakistani companies.

New Delhi’s decision is likely, in part, influenced by China recently increasing its equity in India’s largest private mortgage lender, HDFC Ltd. The additional investment by the People’s Bank of China raised concern in the Indian government regarding the unchecked influence of Chinese investment in India’s private sector. Chinese technology investors, such as Alibaba and Tencent, also remain heavily vested in India’s technology sector — nearly $4 billion according to Indian think tank, Gateway House. According to officials, the new measure will not impact existing investments by Chinese companies, but is expected to create barriers for future Chinese investments.

India is not alone in their concerns regarding predatory investing from China amid the crisis. European governments are also considering measures to protect against foreign business takeovers as the share values of several European companies continue to decline amid the prolonged pandemic lockdowns. Earlier this month, the Italian government issued additional measures that authorize Rome to block foreign business takeovers of Italian companies, even those attempted by companies from other EU countries. Similar efforts are also underway in Germany, France, and Spain.