Why is the Indian government selectively approving Chinese technology JVs?

The government is giving approvals to certain Chinese investments from technology sector

Chinese investments in electronics manufacturing and automobiles are getting security clearances relatively faster from the Central Government compared to investments in other areas ranging from private equity to pharmaceuticals that are seeing extended wait times.

Sectors such as electronics manufacturing and automobiles have emerged as outliers for government approvals when it comes to Chinese investments. According to multiple government and industry sources, Chinese technology companies operating in the electronics domain are getting security clearances from the Central Government relatively faster than investments in other sectors. Meanwhile, approval for Chinese investments in areas ranging from private equity to pharmaceuticals continue to face extended wait times.

Multiple government and industry sources told Moneycontrol  that the government has given its go-ahead to several Chinese entities in the technology sector over the last few months and that more approvals may be in the pipeline.

For instance, the Indian government last year approved Micromax-owned Bhagwati’s joint venture with Chinese original device manufacturer (ODM) Huaqin and Dixon’s stake purchase in Ismartu India, a subsidiary of China’s Transsion Technology Limited.

Dixon has now entered into agreements to form joint ventures with China’s HKC and Vivo to manufacture display modules and smartphones, respectively, and is awaiting approval under Press Note 3. Similarly, last year the government approved the joint venture between India’s JSW Group and China’s SAIC Motor to manufacture electric vehicles (EVs) under the MG brand. SAIC Motor is a Fortune 500 company with annual revenues of around $110 billion and a presence in over 100 countries,

Currently, there are at least two dozen pending applications from Chinese investors and companies seeking to invest in India. According to industry estimates in 2024, the government received 526 Foreign Direct Investment (FDI) applications from Chinese investors, of which 124 were approved, 201 were rejected, and 200 remain pending.

An email sent to the Department for Promotion of Industry and Internal Trade (DPIIT) remained unanswered.

The sources cited above said the government is adopting a more calibrated approach towards Chinese companies, allowing them to invest in India in sectors where it is a strategic priority.

Chinese investments in high technology areas favoured

For instance, in areas like electronic components for mobile phones and other advanced devices, China is the global leader, and Chinese firms possess deep expertise. While blanket approvals for Chinese firms remain restricted, the government is quickly approving joint ventures (JVs) with Indian firms in the electronics manufacturing sector, with adequate checks and balances.

JVs with Chinese companies are viewed as a strategic move to grant Indian firms access to high-end technology, particularly as India prepares to launch a comprehensive electronics component scheme aimed at building a robust manufacturing ecosystem.

“The China +1 strategy in the non-semiconductor segment positions India within the global value chain, and JVs are the way forward,” a government official stated. The official further emphasised that the government is closely monitoring collaborations between Chinese brands and Indian firms to foster domestic manufacturing.

“We need to understand how China built its industry -by manufacturing for global brands, learning advanced techniques, and mastering technology before becoming a powerhouse. The Indian industry must reap similar benefits,” he added.

“India is attracting massive Foreign Direct Investment (FDI) from across the globe; hence, there is no dearth of capital. India is not dependent on China for FDI flows. But in certain specific sectors like technology, Indian companies need to collaborate with Chinese firms that possess the required expertise,” a source familiar with the matter said.

Following the border clashes between India and China in 2020, the Indian government issued Press Note 3, making it mandatory for all Chinese entities to seek prior government approval before making any fresh investments in India. Subsequently, Indian investigative agencies, including the Enforcement Directorate (ED), have cracked down on certain loan apps with Chinese connections available on mobile app stores.

Another source cited above said the government is not keen on Chinese entities investing in India’s financial services sector, including lending, as it poses systemic risks. “Startups have also been looking for investors from Europe or America instead of Hong Kong-based funds since obtaining necessary clearances from the government has become difficult,” the person said.

The Economic Survey for FY24 had argued for relaxations to Press Note 3, stating that China could help India improve its participation in global supply chains through exports. However, the government has so far not officially eased these restrictions.