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China says new FDI norms violate WTO; officials say others put firewalls too

According to the amendments to India’s consolidated FDI Policy, 2017, while non-resident entities can continue to invest in India, except in prohibited sectors or activities, firms in neighbouring countries will have to seek approval.

Written by Shubhajit Roy , Prabha Raghavan | New Delhi | Published: April 21, 2020 4:40:41 am
Modi-Xi summit: Here is how Chinese media covered the Mahabalipuram meeting New Delhi maintains the policy is not aimed at any one country but spokesperson for the Chinese Embassy in India Ji Rong made it clear its echo in Beijing.

Two days after the government tweaked its FDI policy to make its approval mandatory for firms in neighbouring countries to invest in Indian companies, China claimed Monday that this violates the WTO’s “principle of non-discrimination”. And hoped that India will “revise” its decision.

The government’s move is seen as aimed at checking “opportunistic takeovers” of Indian firms hit by the ongoing Covid outbreak and lockdown.

New Delhi maintains the policy is not aimed at any one country but spokesperson for the Chinese Embassy in India Ji Rong made it clear its echo in Beijing.

“The impact of the policy on Chinese investors is clear. Chinese investment has driven the development of India’s industries, such as mobile phone, household electrical appliances, infrastructure and automobile, creating a large number of jobs in India.Chinese enterprises actively made donations to help India fight COVID-19 epidemic,” Ji said.

China’s FDI has grown five-fold since 2014 and, as of December 2019, its cumulative investment in India has exceeded $8 billion. A Brookings India paper pegs the total current and planned Chinese investment in India as being over $26 billion.

Ji’s reference to job creation and donations to India — in terms of testing kits, masks and protective gear – is meant to underline Beijing’s contribution to Indian economy and its fight against the pandemic.

She said that the outbreak should make countries work together to bring their economies back on track. “(But) 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,” Ji said.

She added that New Delhi’s decision isn’t in tune with “the consensus of G20 leaders and trade ministers to.keep our markets open”.

According to the amendments to India’s consolidated FDI Policy, 2017, while non-resident entities can continue to invest in India, except in prohibited sectors or activities, firms in neighbouring countries will have to seek approval.

“.an entity of a country, which shares land border with India or where the beneficial owner of an investment into India is situated in or is a citizen of any such country, can invest only under the Government route,” stated the press note issued by the Department for Promotion of Industry and Internal Trade (DPIIT).

This came days after China’s central bank, the People’s Bank of China (PBoC), raised its shareholding in Housing Development Finance Corporation (HDFC) to over one per cent during the recent stock market slump.

HDFC vice chairman and CEO Keki Mistry had said that PBoC had been an existing shareholder, owning 0.8 per cent in the firm as of March 2019.

Restrictions on investments by citizens of or entities incorporated in Pakistan continue in the amended notification.

“The amendments are not prohibiting investments. (We have) just changed the approval route for these investments. There are many sectors in India that are already subject to this approval route,” a senior government official told The Indian Express. “Many other countries are also doing this.”

Over the last two months, countries like Germany, Australia and Spain have tightened their foreign investment policies to prevent hostile takeovers by overseas investors.

“We have seen steps being taken by other jurisdictions to prevent purchase of domestic entities at cheaper valuations. In this regard, the European Union has issued guidelines to ensure key EU assets are protected,” said Khaitan & Co Partner Atul Pandey.

Italy has also restricted investment in sensitive areas. The US already has an inter-agency committee responsible for reviewing foreign acquisitions.India has just followed suit, in line with actions being taken globally,” Pandey said.

But, unlike in other cases, the new norms do not apply to all countries but just those which share borders with India. “There will now be different sets of procedures for the same set of investments based on which country the company is investing from. This is where the potential issue of discrimination may be raised by critics of the new norms,” said a trade expert.

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