India foreign investment rules to include Hong Kong

New Indian rules to ensure scrutiny of investments from companies based in neighbouring countries, especially during the coronavirus outbreak, will also apply to Hong Kong, two senior government sources said yesterday. India said on Saturday that foreign direct investments from countries with which it shares a land border would require prior government approval to deter “opportunistic” takeovers and acquisitions during the pandemic, but it gave few other details. Two Indian government officials said the policy will be interpreted in a broad manner and will not make any distinction between China and Hong Kong investments, saying inflows from both will be scrutinised in the same manner.

“It’s common sense how Hong Kong investment should be taken. Investment from there is no different to China,” said one of the officials. The officials have been involved in the framing of India’s investment policies. The Chinese Embassy in New Delhi said yesterday the rules were against free and fair trade and “Chinese investment has driven the development of India’s industries”. It said China’s cumulative investment in India exceeds $8 billion.

Some experts believe the total investment coming through Chinese entities is far higher as it is routed through multiple jurisdictions. The new rules govern entities located in a country that shares a land border with India and will be applicable even if the “beneficial owner” of investment is from those nations. Such investments will require government approval, the rules said, meaning they can’t go through a so-called automatic route. The rules did not name China or Hong Kong.

Three government officials, including the first two, also clarified the new rules of scrutiny would apply to foreign direct investments in greenfield projects. “There is no sunset clause for the rules,” the first government official said about the timeframe of the policy, adding that it would be used “in the widest possible way”. Indian digital payments firm Paytm, online grocer BigBasket and e-commerce company Snapdeal all have been funded by China’s Alibaba. China’s Bytedance has plans to invest $1 billion in India, while automakers including Great Wall Motor Co Ltd (601633.SS) and MG Motor, a unit of China’s SAIC (600104. SS), have said they intend to invest millions.