India takes steps to limit takeovers of Chinese companies


India has tightened its foreign investment rules to block “opportunistic takeovers” by its neighbors, addressing concerns that Chinese buyers may use the coronavirus pandemic to catch weakened Indian businesses.

The Commerce Ministry said on Saturday that any entity based in or linked to a country “that shares [a] land border with India “would require government approval before investing in an Indian company.

This decision mainly affects Chinese organizations because restrictions are already applied to investors in Bangladesh and Pakistan.

In a statement, the ministry said it aimed to curb “the opportunistic takeovers of Indian companies due to the current COVID-19 pandemic.”

These concerns are not limited to India. Margrethe Vestager, EU competition chief, told the FT last week that European countries should consider buying stakes in companies to ward off the threat of Chinese takeovers.

Chinese investors have increased their presence in India in recent years, with Internet companies like Tencent and Alibaba becoming influential forces in the technology sector. This caused discomfort due to historically strained relationships, the two having waged war in the early 1960s and have had limited ties since.

Covid-19 triggered a liquidation on the Indian stock market, which left many companies in need of funds.

A week ago, one of India’s top securities, the mortgage lender Housing Development Finance Corporation, revealed that the People’s Bank of China increased its stake to 1% from 0.8% .

“The massive economic downturn has weakened many Indian businesses, making them attractive targets for takeovers,” opposition party leader Rahul Gandhi wrote on Twitter after the HDFC announcement. “The government must not allow foreign interests to take control of an Indian business during this time of national crisis.”

India has been blocked since the end of March, all services except essential services being prohibited. The measures, which should continue until at least May 3, have had a brutal effect on the business sector: manufacturers have closed their factories, financial companies face higher defaults and start-ups loss-makers lack liquidity.

“Indian companies are vulnerable to predatory acquisitions,” said Ambika Khanna, senior researcher at Gateway House, a foreign policy think tank, saying this step appears to be a response to “the high number of Chinese direct and indirect investments.” in India “. “.

Chinese companies are investing in two-thirds of Indian start-ups valued at more than $ 1 billion according to Gateway House. Alibaba is a large investor in Paytm, a financial technology company and in the Zomato food delivery service. Tencent supported the car transport app Ola and Byju’s, an educational start-up.

The prospect of foreign investors from China gaining access to companies processing sensitive personal data or critical technology should be subject to more government scrutiny, said Khanna.

“It is imperative that India integrate national security as a field to monitor incoming FDI in order to protect our market and our industry,” she said.


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