China Says India’s New FDI Policy Rules Violate WTO Principle, Hopes for Revision

While the new restrictions would apply to even countries like Nepal and Bhutan, China's embassy in New Delhi said that the impact of the policy on the country's investors is clear.

New Delhi: After India changed foreign direct investment (FDI) rules to implicitly curb takeover by Chinese firms during the COVID-19 pandemic, China has termed it a violation of World Trade Organisation’s non-discrimination principle and called for its revision of its “relevant discriminatory practices”.

Last week, the Ministry of Commerce’s Department for Promotion of Industry and Internal Trade (DPIIT) had issued changes in its FDI policy that earlier put restrictions only on citizens and corporate entities from Bangladesh and Pakistan from investing in India.

Under the revised rules, 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 approval route.

While the new restrictions would apply to even countries like Nepal and Bhutan, it is evident that the measures were introduced to keep away Chinese firms. The fears of an imminent Chinese takeover of ailing Indian firms during the pandemic may have been stoked by the purchase of a small amount of shares of HDFC by People’s Bank of China.

Also Read: One Eye on China, Modi Govt Tweaks FDI Policy to Curb ‘Opportunistic Takeover’ of Indian Companies

Two days after the new rules were made public, the spokesperson of the Chinese embassy in Delhi, Ji Rong noted that revision of the FDI policy is “making it much difficult for companies from countries sharing land border with India, including China, to invest in the country”.

She noted that the total investment by China in India is over $8 billion, that is “far more than the total investments of India’s other border-sharing countries”.

“The impact of the policy on Chinese investors is clear,” said Ji, adding that Chinese firms have driven development of Indian industries, from mobile phones to infrastructure and created a large number of jobs. “Chinese enterprises actively made donations to help India fight COVID-19 epidemic”.

Further, the Chinese diplomat observed that the companies decide on their investments based on the host country’s “economic fundamentals and business environment”. “Facing the economic downturn caused by COVID-19, countries should work together to create a favorable investment environment to speed up the resumption of companies’ production and operation”.

In the written statement, Ji said that the “additional barriers set by Indian side for investors from specific countries violate WTO’s principle of non-discrimination, and go against the general trend of liberalization and facilitation of trade and investment”.

She also asserted that these new revisions to India’s FDI policy “more importantly” do “not conform to the consensus of G20 leaders and trade ministers to realize a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open”.

Asserting that companies make choices based on market principles, the spokesperson of the Chinese embassy hoped that “India would revise relevant discriminatory practices, treat investments from different countries equally, and foster an open, fair and equitable business environment.”

Welcome FDI from China also

While no response to the Chinese embassy statement was immediately forthcoming from the ministry of external affairs or the ministry of commerce, Niti Aayog chief Amitabh Kant appeared to slightly backpedal in an interview with business channel CNBC in which he stated that India welcomes FDI from all countries including China.

“Better that Chinese companies invest in India rather than export from India. We realise that India needs equity and FDI….If China comes in and [does] greenfield investment, we would welcome that. All Chinese companies manufacturing in India should continue to do so,” the top Niti Aayog official told the business channel.