June 01, 2023

FDI Rules Changed To Prevent Predatory Acquisitions By Chinese Firms

By Sunil Garodia
First publised on 2020-04-19 11:21:04

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Editor-in-Chief of indiacommentary.com. Current Affairs analyst and political commentator.

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The government has done well to make changes in the FDI rules to ensure that Chinese firms do not make predatory strikes on Indian companies stressed by the Covid-19 pandemic and the subsequent lockdown in India. Although fears and worries were floating around in corporate corridors, the issue was first raised in the public domain by the Congress leader Rahul Gandhi. He has also thanked the government for having taken the decision. India was not alone in having worries on this score. Countries across the globe have been quick to amend rules to prevent Chinese firms from acquiring their companies in these troubled times.

The FDI rules in India have now been amended to ban automatic approval of any investment in any Indian firm by any company from a country that shares a border with India. Since many such Chinese investments are routed through countries such as Hong Kong, Singapore and other tax havens, the rules have also been amended to include any investment in which Chinese citizens or companies have beneficial ownership. All such investments will now require prior government approval. The government must have been alarmed when it was recently reported that the Public Bank of China had acquired a 1% stake in HDFC through open market operations following the Foreign Portfolio Investment (FPI) route. The shares prices of many companies in India have been battered down to new lows and this might seem attractive to the Chinese. Hence the government moved in quickly to amend the rules.

The Chinese are also worried about the fallout of the pandemic on the manufacturing units of overseas companies located in China. Several countries, most notably Japan, have already instructed their firms to move out of China. India, along with several other Asian nations, offers a good platform for the relocation of manufacturing facilities for firms moving out of China. Hence, the Chinese would want to invest in Indian companies to ensure that if not in China, they continue making goods for firms all over the world in India. But India has its own concerns, mainly for security in sensitive sectors, and cannot allow unrestricted investments from China.