China calls India’s new FDI rules discriminatory for free trade

China has called India’s new FDI rules a violation of WTO principles of non-discrimination and against free and fair trade, a strong stand after India took steps to stop opportunistic buying in Indian companies by its neighbours.

The fallout was anticipated as India is one of the biggest markets for China in terms of trade and investment and the Xi Jinping-led government has called for a revision of the “discriminatory practices” put in place by India. 

“We hope India would revise relevant discriminatory practices, treat investments from different countries equally, and foster an open, fair and equitable business environment," the Chinese Embassy said in a statement.

The Indian government tweaked its FDI policy on April 18 which mentioned that an entity of a country, which shares a land border with India or where the beneficial owner of investment into India is situated in or is a citizen of any such country, can invest only under the government route.

The matter came to light after China’s central bank People’s Bank of China had raised its stake in India’s mortgage lender HDFC to a little over 1%. 

This led to a call for protecting Indian companies from predatory stake buying with political parties complaining that China is taking advantage of the dip in Indian stock markets during the COVID-19 outbreak and trying to buy distressed assets. 

To put a stop to such opportunistic buying, countries like Italy, Spain, Australia and Germany have reportedly tightened their FDI policies.

For China, the new FDI rules framed by India will also affect indirect investments. It means if a Chinese company invests in an entity overseas that has invested in India, the deal will need to be approved as per the new policy put in place by the Indian government.

Besides China, the new FDI policy will put all of India’s neighbours under its ambit.

The move will likely have a significant impact on India’s tech economy as China is also one of the largest investors in the Indian startup ecosystem. A recent report by Gateway House estimated that Chinese investors have pumped in around $4 billion into Indian startups. 

Paytm, Ola, Zomato, Swiggy, BigBasket, Byju’s, Delhivery, Dream11, MakeMyTrip, Hike, Policybazaar, Rivigo, Udaan are some of the big names that have received investments from Chinese companies.