India Investment Rules Aimed At China, Include HK

New Indian rules to ensure scrutiny of investments from companies based in neighbouring countries, especially during the coronavirus outbreak, will also apply to Hong Kong, two senior government sources told Reuters on Monday.

India said on Saturday that foreign direct investments from countries with which it shares a land border would require prior government approval to deter “opportunistic” takeovers and acquisitions during the pandemic, but it gave few other details.

While the move was seen aimed at Chinese firms, it caused confusion among lawyers, investors and business executives on whether it would apply to Hong Kong.

India’s industries ministry, which drafted the policy, did not immediately respond to an email seeking comment.

Two Indian government officials told Reuters the policy will be interpreted in a broad manner and will not make any distinction between China and Hong Kong investments, saying inflows from both will be scrutinised in the same manner.

“It’s common sense how Hong Kong investment should be taken. Investment from there is no different to China,” said one of the officials. The officials have been involved in the framing of India’s investment policies.

Indian government data showed that between April 2000 and December 2019, foreign direct investments from China stood at US$2.3 billion and US$4.2 billion from Hong Kong.

The Chinese Embassy in New Delhi said on Monday the rules were against free and fair trade and “Chinese investment has driven the development of India’s industries”. It said China’s cumulative investment in India exceeds US$8 billion.

Some experts believe the total investment coming through Chinese entities is far higher as it is routed through multiple jurisdictions.

The new rules govern entities located in a country that shares a land border with India and will be applicable even if the “beneficial owner” of an investment is from those nations. Such investments will require a government approval, the rules said, meaning they can’t go through a so-called automatic route. The rules did not name China or Hong Kong.

India has land borders with China, Pakistan, Bangladesh, Myanmar, Nepal and Bhutan.

Three government officials, including the first two, also clarified the new rules of scrutiny would apply to foreign direct investments in greenfield projects. (Reuters)