Thread by @tanvi_madan

In a move that seems to be directed vs Chinese investors/cos., India adjusts its FDI policy for indvs/entities from neighboring countries to "curb opportunistic takeovers/acquisitions of Indian cos. due to the current COVID-19 pandemic" 1/
dipp.gov.in/sites/default/…

Now Indian govt approval/route reqd. for investments from:
- "an entity of a country, which shares land border w/ India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country"
- applies if there's transfer of ownership too 2/

Why do new Indian FDI restrictions seem to be vs China?
- timing, reports of such PRC-linked actions in COVID era
- specific to entities/indvs from states sharing "land border"
- limits for Pak already exist
- C is the Voldemort in India fopo--country that shall not be named. 3/

If you haven't read it already, worth reading @ananthkrishnan's recent @BrookingsIndia report that looked at Chinese investments in India & implications for Indian diplomacy, economy & security brook.gs/2UKIqTe 4/

Some recent context: 5/ indiatoday.in/business/story…

In case you're wondering, you're not likely to hear objections from the Congress party re these new Indian FDI restrictions apparently directed vs Chinese investors (quite the opposite -- the party's claiming credit for them) 6/

Indian concerns re Chinese investment aren't new &, in some ways, these restrictions were a long time coming.

(I wrote a paper for Heritage Fdn's Quad-Plus dialogue in Mar 2016; it included investment screening info sharing/capacity bldg as a potential Quad agenda item) 7/

A few days ago, there were reports that the Securities and Exchange Board of India, on the govt's urging, had also increased scrutiny of existing & new Foreign Portfolio Investments from/benefiting China & Hong Kong entities. 8/
livemint.com/market/stock-m…

This explains why for legal reasons SEBI's instructions are framed as broader ("neighboring countries").
+ Chinese "State-owned entities...have approached consultants seeking plans for an orderly exit from India if the government imposes restrictions" 9/
economictimes.indiatimes.com/markets/stocks…

These concerns aren't just found in India. From the EU competition chief a few days ago... 10/
ft.com/content/e14f24…

Chinese emb. in India reax to India's new investment restrictions on countries that share a land border w/ it: says impact on China "clear;" will make investment more "difficult." Further, asserts "add'l barriers...violate WTO’s principle of non-discrimination." 11/

Worth noting China's unhappiness w/ India's new investment restrictions is clear, but tone of the PRC emb. stmt is milder compared to 2016 when it was upset w calls for a boycott of Chinese goods. Then: dismissiveness; said Indian consumers & biz wld hurt more; implied threat 12/

Chinese state media (& to some extent diplo-trolls) is often more vocal vs India. Worth watching them, but particularly keep an eye on MOFA stmts, as well as if there are "sudden" delays/disruptions in supply from China. 13/

https://twitter.com/tanvi_madan/status/1247533815259529216?s=20

Also worth watching if India does revise new policy either cuz
- Chinese reax/retaliation (tho Indian cos. mkt access ltd there so 1-to-1 retal less likely)
- WTO implications
- broader unintended/unanticipated consequences
- its brought under revised investment screening sys 14/

Official: "It’s common sense how Hong Kong investment should be taken. Investment from there is no different to China". Also, "There is no sunset clause for the rules" 15/

https://twitter.com/Reuters/status/1252221687564840965?s=20

"A lawyer who advises Chinese investors [said]...there was a plan this week to seek clarifications on the policy. 'A lot of companies who had finalised their investments are shocked; this injects a lot of uncertainty'" 16/

https://twitter.com/Reuters/status/1252221687564840965?s=20

In coming days, wouldn't be surprised if we see GoI try to convey
- this is not a ban
- focus is natsec/econ sensitive sectors
- greenfield investments from PRC welcome
Also, will be worth watching if GoI makes adjustments post-feedback from PRC/Chinese cos./Indian stakeholders

Over time, there will probably be a broader rethinking of the investment screening sys in India cuz there will be
- many loopholes a determined C investor can exploit
- C investment that shldnt be restricted but will be
- potential for retaliation
- concern re other countries
18/

Reuters piece: "Three government officials, including the first two, also clarified the new rules of scrutiny would apply to foreign direct investments in greenfield projects."

Earlier today from the government... 19/

Some points from a @CNBCTV18News show re India's FDI change/China
- policy refers to "beneficial ownership" - both more interesting & cumbersome
- entities rather than citizenship of a country noted (HK implications)
- press note = policy decision. laws still to be amended 20/