New Delhi can follow Vietnam model for extracting maximum benefits for domestic units
By Subrata Majumder
Recently, Government of India tweaked Press Note 3, 2026 to open door for Chinese investment. It permitted Automatic Approval system for Chinese investment after closing down in 2000, owing to clash with China in Galwan valley, killing several Indian soldiers.
Hitherto, Press Note 3, 2020 restricted foreign investment by countries, bordering India by land , through Automatic Approval system, including China.
The liberalized Press Note 3, 2026 allows companies with less than 10 percent Chinese investment to enter through Automatic route. More importantly, it mandates 60 days time limit for clearing investment proposals to access technologies and integrate with capital goods and global supply chain. These changes will help manufacturing tech-oriented electronic capital goods, electronic components and solar cells.
Why is 10 percent limit for Chinese equity investment? The purpose of Chinese minority stake ceases the threat of Chinese acquisition of Indian companies and mitigate the security concern.
It ensures that Chinese investors maintain only minority, non-controlling stake, keeping majority ownership and operational control in Indian hands, thus abating the security risks.
That seems like a welcome policy decision to open gate for Chinese investment after five years, letting them transfer high tech and intensive capital investment in improving India’s supply chain, while staving off security concern.
Nonetheless, will this restriction of minority stake encourage big Chinese investors to invest in India, who are laden with high technology and large capital stock, to invest in critical industries like in electronics, capital goods and solar cells?
Paradoxically, minority equity share will keep the Chinese big houses away from investing in India. This will bar Chinese big houses (like BYD and NIO for EV and battery, Longi, Jinko, Tina in electronics, CATL in battery) to invest in capital intensive industries and transfer technology to India.
Given this, how does India’s opening door to China will serve the purpose of reducing trade deficit and encourage domestic manufacturing in critical areas under Make in India initiative?
At present, Chinese imports made a turning point in Indian export basket and manufacturing. Hitherto, traditional industries were dominant in the export basket, prioritizing labour intensive industries and agricultural products. But they were of lower value addition. Exports of textiles, garments, leather, agricultural products like spices, cashew are the cases in point.
Large imports from China emerge pivot to the growth of new industries in India. Eventually, they outpaced traditional industries in the export basket. They turn indispensable to the growth of new industries in India, along with major changes in manufacturing policy with greater incentives under PLI scheme (Productivity Linked Incentive).
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Electronic goods emerged 3rd biggest item in export basket in 2024-25, from 7th in 2014-15. It’s share in the export basket leaped from a mere 2.4 percent in 2014-15 to 9.4 percent in 2014-15.
Correspondingly, China emerged the biggest supplier and supporter to the growth of electronic industry in India. It accounted for nearly 39.7 of India’s total imports of electronic goods in 2024-25, comprising of mainly critical component and parts, such as PCBs, display panels and semiconductor devices.
China also emerged biggest source for imports of component and parts for manufacture of telecommunication and automobile industries in India, performing important role as supply chain.
Production of electronic goods in India surged six fold – from US$21.3 billion in 2014-15 to US$127 billion in 2024-25. India is the second largest manufacturer of mobile phones in the world.
Indian engineering industries registered a booming growth under the Make in India initiative. It was triggered by the automobile industry, which contributed 7.1 percent to GDP. Interestingly, while China played a key role in the supply chain for the growth of the automobile industry in India, the major investors in automobile industry are Japanese.
Given these, how does minority shareholding will tempt Chinese big houses, potential for transfer of high technology and large capital investment, to invest in India and became a potential economic partner? Eventually, the attempt to reduce wide trade deficit with China and upturn India a potential hub for supply chain, may turn into dismay.
To this end, a lesson from Vietnam is pertinent. Notwithstanding perennial maritime disputes with China in South China Sea, Vietnam maintained a robust economic partnership with China, “shelving dispute” strategy.
China is the biggest trading partner of Vietnam and 3rd biggest foreign investor. These allow Vietnam to balance security concern with China for its economic dependency. Economic ties are essential for Vietnam manufacturing sector, which depend on Chinese companies.
According to experts, despite frequent tensions in South China Sea, both nations maintain balancing tactics, at times, due to deep economic interdependence.
To this end, a second thought for opening more for Chinese investment in India through Automatic Approval route is imperative. Focusing on balancing strategy through “shelving disputes” on border should be priority. This will unveil fruits for economic partnership with China, which auger well transfer of technology and capital from China for upturn in tech oriented manufacturing and export. (IPA Service)
