India imposes FDI hurdles for Chinese investors
India has increased the regulatory requirements for inbound investments from groups in bordering countries in what is seen as a move to restrict Chinese activity.
Citing concerns related to increased possibilities of opportunistic takeovers, the Department for Promotion of Industry & Internal Trade (DPIIT) has revised the policy governing foreign direct investment (FDI) to include preliminary approvals. According to the update, Chinese individuals and companies would need to seek government permission for any investment, or the transfer of any part of the ownership, in an Indian company.
Previously, these extended compliance requirements only applied to entities headquartered in Pakistan or Bangladesh. It is unclear if the update applies to investors from Hong Kong. The DPIIT indicated that the COVID-19 pandemic was a motivating factor for the revision.
The move appears to have been sparked by the People’s Bank of China’s investment in Housing Development Finance Corporation, a lender affiliated with Indian private bank HDFC, which revealed the central bank as an investor in its updated shareholding records last week. The Singaporean government and Norway’s sovereign wealth fund are also investors in the company.
“This is a likely reference to the possibility of Chinese investors purchasing undervalued shares of Indian-listed companies. This press note, however, does not restrict its application to such cases. It also does not distinguish between different types of investors, such as industry players, financial institutions, or venture capital funds,” wrote Santosh Pai, a lawyer with Link Legal India, in The Hindu.
According to AVCJ Research, Chinese private equity investors were involved in 43 deals totaling $2.1 billion in India last year, down from $3.3 billion in 2018 - the latter figure, however, includes a $1 billion funding round for food delivery firm Swiggy. Chinese investors usually participate in these deals alongside peers from other countries.
Chinese VC investors active in India include CDH Investment, Shunwei Venture Capital, BAce Capital, and 01VC. They and others have backed the likes of online educational platform Vedantu, food delivery player Zomato, payment service provider Paytm, grocery delivery platform BigBasket, and B2B marketplace Udaan.
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