‘We won’t allow hostile takeover by China,’ Modi govt has changed the rules to block predatory Chinese FDI


Around a week ago, China had suddenly shown signs of predatory financial investments in India, with the People’s Bank of China acquiring 1.01 per cent stake in India’s lending major, the Housing Development Finance Corporation (HDFC).

This was really an alarming financial investment by the Communist regime of China, and according to the data submitted by HDFC at the Bombay Stock Exchange (BSE), the People’s Bank of China reportedly acquired as many as 1.75 crore shares in the quarter ended March.

China seems to have specifically targeted HDFC whose shares have been constantly going downwards in the past few seeks amidst the slowdown triggered by the Coronavirus that originated in China’s wet markets in the first place, after touching a record high of Rs. 2,499.65 on January 14, 2020.

Read more: After being blocked by Europe, China is buying stakes in Indian companies. HDFC seems to be the first victim

But now India has now taken cognizance of how the mighty Dragon might actually be eyeing top Indian companies across a range of sectors, including the banking and financial sector in order to hijack the Indian economy, even as China continues to face global outrage.

Accordingly, the Modi government has altered its FDI policy, and as per a Department for Promotion of Industry and Internal Trade (FDI Policy Section) press note India’s FDI policy now stands altered. The alteration itself seems to be aimed directly at avoiding predatory financial investments specifically from Beijing targeting debilitated corporates.

Read more: Fearing Chinese takeover, SEBI will now scrutinise all investments coming from China and Hong Kong

The pre-revised position only restricted Bangladeshi and Pakistani entities/ citizens into investing only under the Government route. But now the restriction has been broadened and according to the Revised Position, “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.”

This more or less concerns China, for among all countries with whom India shares land borders only Chinese FDI can be a matter of concern and therefore, this is the most direct of measures that India has taken against Beijing ever since the Coronavirus Pandemic broke out, forcing a lockdown within India.

The restriction itself is quite broad in ambit, and goes on to include not only State institutions like the People’s Bank of China but all major stakeholders and applies to:

  1. The country itself (China being the top concern)
  2. Beneficial owners of an investment into India

Thus, the revised FDI policy safeguards Indian companies from not only the Chinese State institutions like its Central Bank, but also from the Chinese conglomerates like Alibaba and telecom major Huawei who might have tried to make inroads into India at a time when domestic companies could be facing trouble due to a slowdown in economic activity.

Even more importantly, indirect investments too would happen through the Government route because the latest restrictions apply not only upon citizens and entities of countries sharing land borders with India, but also upon “beneficial owners” of an investment into India.

Therefore, even if a company situated outside China seeks to invest in India, but its beneficial owners, that is, shareholders who alone or together enjoy substantial control over such investments, are situated in China, then it would be covered by the latest restriction. Such investments would have to go through the Government route.

With all direct or indirect investments into India from China passing under the Government route, another HDFC won’t happen. In the case of HDFC, the Bank announced the massive acquisition by the People’s Bank of China after the latter’s investments crossed the regulatory threshold of 1 per cent.

But with investments passing under the Government route, the Modi government will be effectively keeping a tab on the Chinese investments into India. This is significant also because countries across the world are trying to keep Chinese investments at bay. European countries have already tightened their FDI norms, with Germany, Spain and Italy altering their FDI laws accordingly to avoid Chinese intrusion.

Read more: ‘We cannot let China destroy us,’ Spain, Italy and Germany are changing FDI laws fearing hostile takeover by China

China is known for its obnoxious investments around the world from its BRI projects that bring along Beijing’s “debt-trap” diplomacy to its deeply intrusive economic investments in the African Continent. Ever since the Pandemic broke out and China started facing outrage, it has been trying to squeeze maxim profits out of a battered world economy.

India, largely touted as an alternative to the “world’s factory” China, is obviously on Beijing’s radars and HDFC is an example of how the Dragon won’t shy away from waging economic warfare against India. But it seems that the Modi government is equal to the task, and has swiftly moved to block any such invasive attempts from its neighbour.