Expert Panel Name :
- Elisabeth Braw, Senior Research Fellow, Modern Deterrence, Royal United Services Institute for Defence and Security Studies (RUSI)
- Ashok Sajjanhar, Former Ambassador
- Jayant Dasgupta, Former Ambassador of India at WTO
Anchor- Frank Rausan Pereira
What are the main laws that directly or indirectly regulate acquisitions and investments by foreign nationals and investors on the basis of the national interest?
The main laws include the following:
- The PRC FIL 2020;
- Implementing Regulations of the Foreign Investment Law of the People’s Republic of China (Implementing Regulations);
- Measures for Foreign Investment Information Reporting (Measures No. 2);
- Special Management Measures for the Market Entry of Foreign Investment (Negative List) (2019 Version)(Negative List);
- the PRC Anti-Monopoly Law; and
- Notice of the General Office of the State Council on Launching the Security Review System for Mergers and Acquisitions of Domestic Enterprises by Foreign Investors (Notice 6).
How is a foreign investor or foreign investment defined in the applicable law?
The PRC FIL 2020 defines ‘foreign investment’ as investment activities carried out directly or indirectly by foreign natural persons, foreign enterprises or other foreign organisations (foreign investors) in China, including:
- Foreign investors, independently or jointly with other investors, setting up foreign-invested enterprises in China;
- Foreign investors obtaining shares, equities, property shares or other similar rights and interests of Chinese domestic enterprises;
- Foreign investors, independently or jointly with other investors, investing in new projects in China; and
- Investment through other means stipulated in laws, administrative regulations or provisions of the State Council.
Reviewing Chinese FDI :Chinese investment route in India:
It is difficult to get a fix on Chinese investment in India, since a lot could be coming via Singapore, or through funds where a certain beneficial interest could be Chinese; Sebi is supposed to be probing this.
India’s official data show that just 1.5-2% of FDI has come in from China and Hong Kong—$800 mn of the total $45 bn of fresh equity flows in FY19, and $6.5 bn of the $456 bn that has come in since April 2000.
A recent paper by Gateway House estimates China has invested $4 bn in Indian tech startups, resulting in18 of India’s top 30 unicorns having Chinese funding.
In addition, Chinese smartphone manufacturers already have a two-thirds share of India’s mobile phone market.
In 2018, Gateway House says, around half of the total app downloads on—iOS and Google—in India were apps with Chinese investments, such as SHAREit, TikTok, and UC Browser.
The Brookings paper, quoting the Chinese commerce ministry, puts the number at $6.4 bn in 2014-2017 (this includes Fosun’s $1.1 bn to buy Gland Pharma), and says this is an underestimate.
The big investments that come to mind are Alibaba’s $860 mn in Paytm, and $500 mn in Snapdeal, along with SoftBank and Foxconn; Tencent’s $400 mn in Ola, $700 mn in Flipkart, $175 mn in Hike Messenger, and $145 mn in Practo.
Chinese apps ask for 45% more permissions—access to contacts, cameras, microphones, etc—than those requested by the top 50 global apps, this is hardly relevant since none of these firms are based out of India.
The real issue is whether Chinese investors are insisting the firms share the data gathered with them; perhaps, that is something the authorities need to examine.
Steps need to be taken:
If India is to be more vigilant with Chinese investors, it must carve out no-go areas; without such rules, it will be impossible to ever clear Chinese investments in the startup world, which requires quick decisions on funding.
Future Chinese investment, for instance, can be kept out of the fintech space because it interacts with India’s banking system, out of biotech, defence (including drones), telecom (networks, not equipment), and such select areas, but may be allowed in the taxi business, in retail, food delivery, entertainment, etc.
Since China is one of the few countries that have the money to invest right now, if India’s startups aren’t to be starved of funds.
The government will have to ensure Indian investors get a level playing field versus global ones in terms of tax treatment, and other such facilities.
Indeed, till the operating environment in India gets less hostile, more startups will be incorporated in countries like Singapore; then, India can’t even hope to keep a check on Chinese investing in these firms.
At a macro level, if India wants to keep Chinese investment at non-threatening levels, it needs sweeping reforms.
Apart from the obvious reforms to make India more competitive, and fixing the government’s anti-industry bias, policymaking has to become a lot more coherent.
For instance, hope to attract Indian fintech players while, at the same time, abolishing MDR commissions these companies live off.
If price controls continue to hobble domestic pharmaceutical firms, they will have nowhere to turn to but to low-cost Chinese API, and if you keep squeezing telecom players, or don’t allow electricity boards and power producers to get paid adequately, they, too, will turn to low-cost Chinese suppliers.
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