Outright rejection of Chinese investment may not be optimal
Chennai:The recent decision of the government to allow automatic investment by foreign firms with less than 10 per cent Chinese share is “restrictive” and “ineffective”. Every investment proposal has to be evaluated on its own merits. Fears regarding Chinese investments are unfounded and a blanket policy on investments will not help, finds GTRI.
“Foreign firms in which Chinese firms have less than 10 % share can invest automatically in India. Which Chinese firm will be interested in investing?” asked Ajay Srivastava, founder, GTRI, told Financial Chronicle.
“Suppose I'm a Singapore based firm or a Finland based firm where a Chinese firm has a 10 % stake. Who will take the decision - the Singapore government or Singapore firm will take the decision, not the Chinese? So the Chinese are not in the driver's seat. I don't understand the logic of this. I feel it will be totally ineffective,’ he said.
He advocates a calibrated, case-by-case approach. Investments in sensitive sectors such as telecommunications or data infrastructure warrant strict scrutiny due to security risks. However, investments in areas like electronics manufacturing or component production could be beneficial if they strengthen domestic capacity.
“Every investment proposal has to be evaluated on its own merits. A blanket yes or no approach will not work,” he says.
The priority should be to build domestic manufacturing capabilities, particularly in low- and medium-technology sectors where India has the potential to compete.
For high-technology areas requiring capital and expertise, India should selectively invite global investors capable of delivering large-scale transformation similar to how joint ventures in the past reshaped sectors like automobiles.
“Even before the 2020 Galwan clashes, when there were no restrictions, Chinese investments in India were minimal,” he said. The perception that easing norms could trigger a flood of capital from China is not backed by evidence.
Where Chinese investments do occur, they tend to be narrowly focused. Rather than building deep manufacturing capabilities, such investments are largely geared towards facilitating market access for Chinese goods. This includes spending on marketing networks, distribution channels, and, in some cases, assembling imported components within India.
“They are unlikely to invest in core manufacturing ecosystems from scratch,” Srivastava explains. This distinction is critical. Unlike the investments that transformed China into a manufacturing powerhouse in the 1990s driven by large-scale Western capital inflows Chinese firms today are not replicating that model in India.
Even if Chinese firms invest locally, the risk is that India becomes part of an extended supply chain dominated by China, rather than developing independent manufacturing strength. Investments may not translate into technology transfer or domestic capability building.
At the same time, an outright rejection of Chinese investment may not be optimal.
