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Govt sets up screening panel to vet Chinese FDI proposals: Report


The Indian government has set up a screening panel to vet foreign direct investment (FDI) proposals from China, reported Economic Times. Only investments that are considered “non-controversial” will be approved, an unnamed senior government official told the publication. The screening panel is reported to be headed by the country’s home secretary, with the secretary of the Department of Promotion of Industry and Internal Trade (DPIIT) as a member. More than 100 Chinese investment proposals are said to be pending.

An inter-ministerial committee has reportedly been set up to look at investment proposals forwarded to the Home Ministry for security clearances by various other ministries. This committee will examine proposals from the point of view of ownership and their “implications for security”; only the “non-controversial” ones would be approved. This effectively gives the committee a wide room to define and determine what a “security” concern, in an investment proposal would mean.

Why the scrutiny on Chinese investment?

For the past few years, India has been responding to growing concerns of growing Chinese dominance, including in matters concerning the country’s financial might and technological prowess. The fear were compounded after armies of both countries clashed on the Line of Actual Control in the Ladakh region in June. The government has undertaken a series of moves in an attempt to control Chinese influence in India.

  • Restriction on Chinese investments through FDI rules: Even before the border clashes, the Indian government was trying to restrict Chinese investments and acquisitions in the country. In April this year, the DPIIT issued the “Press Note 3 (2020 Series)” to amend India’s FDI policies, effectively introducing bureaucratic hurdles for Chinese companies. All countries that share a border with India can now invest only after getting approvals from the government. Though the Press Note didn’t mention China specifically, it was clear that China was the intended target, considering the country’s size and its investments in India. The aim of the policy change was admittedly to curb the “opportunistic takeovers/acquisitions of Indian companies” during the pandemic.

    It was a reaction to fear that China, through its state-owned companies and other investment arms, might try to take advantage of the global economic meltdown caused by the pandemic to purchase strategic interests in various in countries.

    That the People’s Bank of China increased its stake in the HDFC Bank in March seemed to only confirm the government’s fears. Soon enough, perhaps as a reaction to the FDI policy changes, the People’s Bank of China reportedly sold some of its stake in HDFC bank in July.

  • More than 224 Chinese apps banned: Soon after the border clashes, the government started banning Chinese-owned apps citing fear that they were stealing and transmitting their Indian users’ data to China. Starting in June, the Indian government has banned as many as 224 Chinese-owned apps over three batches, including the extremely popular TikTok, PUB-G and WeChat. The government claimed the apps were engaged in activities that are “prejudicial to sovereignty and integrity of India, defence of India, security of state and public order”.
  • Fintech companies under scrutiny: The government has also reportedly trained its sights  on fintech companies with links to China. It is likely to add such app-based lenders to its list of banned entities. The government is reportedly concerned that several fintech companies operating in India have links to Chinese companies, and even have Chinese nationals as members of their boards of directors. The government fears the potential compromise of sensitive data of India citizens available with these companies, such as Aadhaar, income tax details, bank accounts and more.

Global concerns around Chinese tech

India isn’t the only country that seems to be wary of Chinese investment or tech. The United States’ government is currently trying to force TikTok to divest its American business. US president Donald Trump had issued an executive order banning US business with TikTok and WeChat over concerns that data of US citizens was being compromised. Last week, the US Department of Commerce announced it would prohibit the downloads of TikTok and WeChat on mobile app stores. Last week, a US district court postponed the ban, granting Tiktok a preliminary injunction.

Earlier this year, the US government Chinese companies Huawei, the world’s largest phone maker, and ZTE as “threats” to its national security for their alleged ties to Chinese intelligence services. The two companies, along with their affiliates, were also added to the US Department of Commerce’s “Entity List”, which prohibits them from importing or exporting American technology.

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