China has accused India of violating Foreign Direct Investing (FDI) criteria after the Modi-government introduced a new FDI policy that tightened investment norms for entities or individuals of a country that shared a land border with India.
The move was widely believed to counter Chinese investments from taking over Indian firms at a time of falling share prices and lower asset valuations caused due to a slump in economic activity due to coronavirus pandemic.
A Chinese embassy spokesman in New Delhi said, “We hope India would revise relevant discriminatory practices, treat investments from different countries equally, and foster an open, fair and equitable business environment.”
The statement asserted that the Chinese Yuan had driven India’s mobile, home electrical appliances, infrastructure and automobile sectors creating employment in the country leading to a win-win relationship.
As of December 2019, “China’s cumulative investment in India has exceeded $8 billion, far more than the total investments of India’s other border-sharing countries,” the statement said adding that the impact of the revised policy on Chinese investors is clear.
India recently revised its FDI policy which made Government approval necessary for entities of a country that 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.
The move was seen as a counter to curb hostile and opportunistic takeover of Indian conglomerates at a time of falling share prices and lower asset valuations due to the outbreak of coronavirus pandemic by deep-pocketed Chinese investors.
However, this is not the first time a country revised its policy to prevent opportunistic takeover. Last year Germany drafted an amendment to revise its Foreign Trade Regulation to protect strategic firms from foreign takeover.
In 2017, Germany announced closer scrutiny of investments from non-European Union firms after industrial robotics Kuka was taken over Chinese household goods maker Midea. Berlin also came close to use its veto power last year to halt the sale of Leifield Metal Spinning to China’s Yantai Taihai Corporation.
Some years back, Italy moved to thwart French companies from buying Italian entities after the latter bought Italy’s jewelry firm Bulgari, energy company Edison and food giant Parmalat. The Italian decision came after they found a lack of reciprocity by French against Italian companies seeking to invest in French corporations.
In fact, the French Government moved to protect its company Danone from a takeover by PepsiCo in 2005. In 2010 the French Government also prevented the Japanese from buying the company’s water business.
A few years back, the UK aligned with the United States, Australia, Canada, and other European nations to protect strategic companies from Chinese investments.
China itself is accused of intentionally devaluating its currency so as to gain an unfair advantage in trade. By devaluating its currency, China is able to lower the price of its exports which makes it easier for consumers across the globe to buy Chinese products and gain an unfair advantage in the process.
China also has around 2000 listed companies out of which more than 80 percent are believed to be state-owned. With such a high stake, Beijing subsidizes the output which allows them to capture a large chunk of the market share and weed out competition.
China’s communist regime is also called as red capitalist as they are believed to be the largest benefactors of stakes in such companies. In fact Rizhao, the largest private steel company was forced to sell majority equity (roughly 67%) to Shandong Iron and Steel.
China has also been accused of technology theft by a US report in 2015. One of the rules in China requires companies to set up plants in China to build joint ventures with domestic companies and share their technology with them.