Earlier this year, India eased foreign direct investment rules under partial relaxation of Press Note 3 to allow foreign investors with up to 10% shareholding in land-border countries, including China-linked capital, to invest in India under the automatic route. According to reports from Business Standard, this relaxation applies to select manufacturing sectors such as capital goods, electronic capital goods and components, polysilicon and ingot-wafer, with the stipulation that majority shareholding remains with an Indian citizen or Indian-owned entity. The amendment provides a 60-day window for processing investment proposals from neighbouring countries and does not apply to sensitive sectors including defence, space and atomic energy.
The initial surge in Chinese FDI over the last decade was primarily driven by higher US tariffs during the first Trump presidency and persistently weak domestic consumption spending. As reported by Business Standard, Chinese FDI diversified geographically within and beyond Asean, with Indonesian, Cambodian and Laotian economies added to the Chinese FDI portfolio. Large Chinese corporations are now investing in strategic sectors including resource mining, semiconductors, electric vehicles, battery production for EVs and renewables. In Asean economies, Chinese FDI threatens local supplier networks, with industries importing more machinery and upstream inputs from China rather than using local Asean suppliers.
The European Union has adopted even more stringent measures against Chinese FDI, with Chinese FDI to the EU increasing despite China-specific higher tariffs and stricter import regulations. According to Business Standard, the EU's steel regulation includes new 'melt and pour' traceability requirements for steel imports, helping lower steel import quotas while eliminating transshipment scope. Chinese investors wanting to use Chinese workers in European plants, such as battery-producer CATL's EV factory in Spain, have alerted EU policymakers to spillover costs of FDI from China. The EU passed the Industrial Accelerator Act in early 2026 to strengthen intra-regional value chains and adopted new harmonised foreign investment screening regulation in June targeting hi-tech sectors.
Effective July 1, China has revamped its overseas investment regulatory regime with increased restrictions on technology and know-how sharing by Chinese companies investing abroad. As reported by Business Standard, the revised framework covers high-tech fields including lithium battery manufacturing for EVs, biotechnology, AI algorithms, rare earth processing and aerospace guidance systems. The scope includes restrictions on sending engineers abroad, cross-border training programmes, remote technical guidance, overseas research and development, making the implications for host economies in terms of technological advancement and security considerations quite serious.
Given the dynamic geopolitical context and longstanding security concerns, India has approached relaxation of Press Note 3 FDI rules with caution. According to the analysis in Business Standard, this watchful strategy should be retained for any future liberalization of FDI from China. The experience of Asean economies and the European Union shows that Chinese investments come with serious implications for host countries, including potential displacement of local manufacturing and job losses, making India's cautious approach justified for maintaining national security and economic sovereignty.
