India’s decision to toughen foreign direct investment (FDI) regulations has provoked neighbouring China to the extent that it is threatening to move the World Trade Organisation (WTO). India is believed to have taken this step to stop China from acquiring weak Indian companies in the wake of a Chinese company buying more stakes of HDFC.
China has objected to changes in FDI rules in India. China said that this decision was against the principles of the WTO.
Under the new FDI rules, now citizens or companies of any country connected that shares borders with India will have to seek government approval before investing. Till now, only citizens and companies of Pakistan and Bangladesh needed this approval.
Before India, many other countries have already tightened FDI rules to stop China’s economic imperialism.
After the change in FDI rules, a spokesperson of the Chinese Embassy in New Delhi had said, “We hope that India will amend its discriminatory policy and make the same rules for investments by different countries.” China said India could create an open, transparent and competitive business environment rather.
Meanwhile, Global Times, believed to be a mouthpiece of the Chinese Communist Party, has published an article that issues a veiled threat to India. Thanks to China’s workforce, the Global Times writes, the country is now able to supply medical supplies to the world. However, the Indian government has ignored this fact, the mouthpiece says, using the coronavirus crisis as an excuse to tighten the rules of foreign investment.
India is largely dependent on China for medical supplies, Global Times claims, adding if India attempts to stop the alleged opportunistic takeover of Indian companies by China, the latter will make it difficult for India to get the supplies in this hour of crisis.
According to the data of Pharmacil, India buys most of the raw material for its medicines from China. Indian companies have already expressed concern that India’s production may be severely affected due to the affected supply of raw materials from China.
India is worried that China may take over Indian companies and take control of some Indian sectors, taking advantage of the coronavirus crisis, the Global Times article wrote, but these fears are unfounded, it said.
China says this step of the Indian government was unnecessary because the previous policy was good enough to stop an Indian company from being acquired. Chinese analysts say such restrictions on their investment will prove “fatal” for India’s manufacturing sector.
Soon the impact of this new policy will be seen on Chinese investment in India. Further, Indian investment in China will be affected.
The Global Times claimed that even though this decision had opened up other doors for India, as Japanese and South Korean companies are looking for a chance to relocate their business, India’s manufacturing sector cannot think of replacing China.
The Chinese media outlet wrote that there was a possibility that India would become the next manufacturing hub, but the supply chain will remain broken due to the current economic crisis.
China believes India will take a very long time to fulfil the objective of becoming a manufacturing hub. India should, therefore, increase cooperation with China, Global Times argues.
The Global Times has written that India’s closed-door can also open a second window of opportunity for Chinese companies. Many Chinese companies want to expand overseas after the global pandemic ends and they can turn to south-east Asian countries for this.
The newspaper has written if India proves to be unsafe for Chinese companies, they will move their businesses to other south-east Asian countries who are “more willing to take help from China”.