Awaiting PN3 nod, Indian firms begin groundwork for Chinese joint ventures: Report

Chinese firms are known to have technological prowess.

• Indian firms await PN3 clearance for Chinese tie-ups, causing project delays
• Press Note 3 (PN3) was issued to prevent opportunistic takeovers, especially by Chinese firms
• Dixon Technologies and PG Electroplast have started work

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While Indian companies that have planned collaborations with Chinese firms await government clearance under Press Note 3 (PN3), some of them have started the initial work as the leadership in these firms are 'hopeful' that the approvals will eventually come through.

According to an Economic Times report, Indian firms are pressing the Centre to hasten the process of giving clearance for the tie-ups with the Chinese firms, as the delay in getting the approvals, ranging from three months to a year, is hampering their business plans.

Press Note 3 (PN3) was issued by the Union Commerce Ministry’s Department for Promotion of Industry and Internal Trade (DPIIT) to prevent opportunistic takeovers, especially by Chinese firms, and monitor ownership in sensitive sectors such as infrastructure, telecom, and agriculture and food supply chains.

Under PN3, companies need multi-departmental clearance for any equity investment from a country sharing land borders with India, such as China.

Chinese companies, on the other hand, require Beijing’s approval for equity or technical alliances with foreign partners to ensure the critical technology know-how and intellectual property remains with them, reported ET.

Among the Indian companies with planned Chinese tie-ups that have started work is Dixon Technologies, India’s largest home-grown electronic contract manufacturer. Managing director Atul Lall said the firm has started constructing a factory for manufacturing display modules and ordered machinery, some of which have arrived at the Indian ports, despite the proposed project with China's HKC Corp awaiting PN3 approval.

According to the report, the factory being constructed by Dixon Technologies is planned to be run as a 74:26 joint venture (JV) between Dixon and HKC.

"Commencement of production at the plant is not contingent on the PN3 approval… PN3 for HKC will definitely come through…if it doesn’t come through, it will not have any impact on execution and starting the production of the plant. It will become a 100% subsidiary," Lall told analysts, adding that the company was confident of also getting approval under the production-linked incentive scheme for electronic components.

PG Electroplast Ltd, one of the largest contract manufacturers for air-conditioners, washing machines and televisions, too has started construction for an AC compressor plant near Pune, which it intends to set up in a technical alliance with one of China’s largest compressor companies, said people in the know of the matter, adding that the partner will most probably be Shanghai Highly Group.

While there is no equity clause, the agreement has been waiting to receive approval from Chinese authorities for almost a year, reported ET.

PG Electroplast chief financial officer Pramod Gupta told analysts that the company is in touch with its partner and “very, very hopeful” to close the deal very soon.

A leading electronics company, states the report, is thinking of starting construction for a component factory and is scouting non-Chinese partners.

As per the ET report, Dixon has also yet to receive the PN3 approval for its joint venture with Chinese smartphone brand Vivo, which it had expected to get by September. The company is hoping to manufacture 20 million smartphones under the Vivo JV next fiscal year.