Policy analysts, however, argue Chinese firms often have opaque beneficial structures. “In China, company structures are such that you don’t know where private control ends and state control begins,” says Amit Bhandari, fellow, energy and environment studies programme at Gateway House, an foreign policy think- tank.
New rules will have to be introduced to provide comprehensive procedures for the government to monitor the investments intended to be ring-fenced under the notification, says Davar. While the notification only talks about FDI, he points to the Securities and Exchange Board of India (Sebi) recently requesting custodians to provide extensive information on FPI from funds emanating from and controlled by several Asian nations, with a focus on China
and Hong Kong.
The need for a new mechanism is also echoed by others. “The need of the hour is to balance competing concerns — the protection of national interests and ensuring that FDI flows into India are significantly enhanced and received on time,” says Rajat Sethi, partner at S&R Associates.
Sethi’s advice to the government is: Provide greater clarity on the criteria for deciding applications for Chinese investment into India, and streamline the FDI approval process, which is currently riddled with numerous inefficiencies.
Further, in sectors of concern, such as critical infrastructure, banking, telecom and health care, the government may undertake a more detailed review of the application for FDI approval, he adds. In other sectors, the approval process could be fast-tracked with limited review.
The free flow of funds from Chinese businesses through other jurisdiction has also led to major confusion among companies, mostly in the tech space. For instance, Hong Kong, which is under Beijing's sovereign control, has strong financial laws of its own. It accounts for $4.4 billion worth of historical investments into India — almost double the $2.3 billion coming from China.
According to Pandey, traditionally India has distinguished between Hong Kong and China
as separate jurisdictions and executed separate trade treaties with both. Hong Kong, a member of the World Trade Organisation (WTO) in its own right acting as a separate customs territory, has also been specifically declared as a reciprocating territory in the Indian Code of Civil Procedure, while China hasn't been accorded the same treatment, point out experts.
Interestingly, Taiwan, despite deep financial connections to the Chinese mainland, will not be a part of the latest FDI restrictions.
Amidst this haze, there remains a silver lining for India. While China has claimed the new rules violate the WTO principles of non-discrimination and free trade, experts say lack of a clear global agreement on FDI matters will inevitably play in India's favour, even as the global stance against China hardens.