For the first time in six years! India loosens restrictions on investments in China

Ask AI · Why did India relax restrictions on China after a decline in investments?

According to a recent report by Global Times, the Indian Cabinet announced on March 10 that it has approved amendments to the rules regarding investments from countries that share land borders with India. This is the first time India has eased restrictions on Chinese investments since the implementation of Notice No. 3 in April 2020.

According to the announcement from the Indian Cabinet on the 10th, India made two significant adjustments: First, if the beneficiary of the investment holds no more than 10% of the equity in the investment entity and does not control the investment entity, then the investment entity’s investment in India will be subject to an automatic approval process; second, investments in areas such as electronic components, electronic capital goods, polysilicon, and silicon wafers will have an approval timeframe limited to 60 days, provided that the invested entity is controlled by Indians or entities controlled by Indians.

The India-China Chamber of Commerce stated to the Global Times on the 11th that this adjustment in India’s investment policy towards China is a “partial optimization,” rather than a “full relaxation,” and thus, the actual implementation and effects of this policy adjustment will require further observation.

On April 17, 2020, India issued Notice No. 3, declaring that any entity from countries sharing land borders with India, or any investment beneficiary located in such countries or a citizen of such countries, must obtain prior approval from the Indian government for investments in Indian entities.

Although the notice did not specifically mention restrictions on Chinese investments, public opinion in India widely believed it was aimed at limiting Chinese investments.

The announcement of new regulations by India has strong practical considerations.

Data released by the Reserve Bank of India shows that foreign direct investment (FDI) in India peaked at over $43 billion during the fiscal year 2020-2021 but has since seen a significant decline for consecutive years, plummeting from $38.6 billion in the fiscal year 2021-2022 to less than $2.7 billion in the fiscal year 2023-2024, and dropping to just $350 million in the fiscal year 2024-2025, with a rare occurrence of negative net foreign direct investment growth in August 2025.

Lin Minwang, Deputy Director of the Institute of International Studies at Fudan University, stated in a previous interview with the Global Times that since the introduction of restrictions on Chinese investments in India in 2020, there have been differing opinions within the Indian government. Starting around 2022, Indian media has almost annually reported similar calls urging the government to relax restrictions on Chinese investments. If this policy can be implemented, it would signify a significant adjustment in India’s “decoupling” policy from the Chinese economy since 2020.

The Indian Ministry of Finance released the “Economic Survey 2023-2024” report on July 22, 2024. The report urged India to increase foreign direct investment (FDI) from China to strengthen local manufacturing and exports. It also pointed out that China’s advantages in key areas such as green energy and electric vehicles are so significant that advancing technological transformation would be challenging without China’s assistance.

Regarding the new regulations, the Indian Cabinet stated that they would help improve India’s business environment, attract more foreign direct investment, enable Indian enterprises to acquire new technologies, facilitate their expansion and integration into global supply chains, and enhance India’s competitiveness as an investment and manufacturing destination. More foreign investment would help supplement domestic capital, support the achievement of the “Self-Reliant India” goal, and promote economic growth.