(MENAFN- Live Mint)

New Delhi: India is exploring whether a company with a small shareholding from a China-based or connected entity can be considered 'Chinese' firm, said three people aware of the matter, as New Delhi prepares to ease curbs on investments from its neighbouring nation to counter US tariffs.

Under the Press Note 3 (PN3) notification of 2020, investments from countries sharing land borders with India require New Delhi's approval. The increased scrutiny was largely targeted at China to curb opportunistic takeovers and acquisitions of Indian companies due to the covid-19 pandemic.

The commerce ministry has begun discussions with stakeholders to determine whether firms with even a small percentage of Chinese shareholding should be considered as a Chinese company," the people quoted earlier told Mint, speaking on the condition of anonymity. This, in turn, will help determine whether such firms should be allowed to invest without being placed under the restrictions for the purpose of investment approvals, they said.

“A suitable definition of companies belonging to border-sharing nations would bring clarity and certainty for Indian companies seeking investments from China-based firms," said Sundeep Nayak, former director general of the National Productivity Council.

“At present, the ambiguity around what qualifies as a Chinese company is creating hesitation for both investors and domestic businesses," said Nayak.“A well-defined framework will not only streamline approvals but also ensure that genuine investments in non-sensitive sectors are not held back."

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India's softer stance on Chinese investment signals a pragmatic shift aimed at securing new economic opportunities as external pressures mount. US President Donald Trump has imposed 50% tariffs on Indian goods, the highest globally, including a 25% penalty for buying Russian oil. The first set of duties came into effect on 7 August, and the additional 25% on 27 August. That has helped bring China and India closer, with Prime Minister Narendra Modi visiting Tianjin for the Shanghai Cooperation Organisation summit.

Queries emailed on Wednesday to the spokespersons of the ministries of commerce, external affairs and the Chinese Embassy in New Delhi remained unanswered.

'Can't ignore China'

“It is a fact that almost 90% of capital goods are manufactured by China, and the world cannot ignore China. They have overinvested in more than what the world needs and created interdependence. We also need their technology," said one of the three people cited above.

“Subsidiaries or step-down companies of major Chinese firms, which hold only a very small stake in Indian entities - such as 0.1% or slightly higher - do not necessarily need to be brought under the restrictions meant for Chinese companies," this person said.

According to the second person quoted earlier,“The Indian government is in discussions with stakeholders to allow such investments without considering these firms as Chinese companies. It has also been suggested that a minimum threshold of shareholding could be set, below which investments may be permitted without additional scrutiny."

“A meeting in this regard happened last week and a few more meetings are scheduled in the coming days," the third person said.

Bid to shore up FDI

Earlier, Mint reported on 30 August that India plans to ease covid-era curbs on Chinese foreign direct investment (FDI), allowing 20–25% investments in manufacturing, renewable energy, and auto components through the automatic route, while keeping strategic sectors off-limits.

India is also looking to create a more industry-friendly ecosystem to boost FDI to $100 billion from about $80 billion. Currently, 100% FDI under the automatic route is allowed in most sectors, except a few strategically important ones such as defence and atomic energy.

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“The 50% US tariff on Indian exports is a serious setback for labour-intensive industries such as textiles, apparel, leather and engineering goods," said Vinod Kumar, president, India SME Forum.“To counter this, India will need to attract greater investment flows that can boost manufacturing, create better employment opportunities, and make Indian goods more price-competitive in global markets."

India has resumed issuing tourist visas to Chinese nationals after a five-year gap. New Delhi is also preparing to restart direct flights to Beijing, restoring air connectivity that has remained suspended since the covid-19 pandemic.

Trade grew despite curbs

While India restricted Chinese investments, trade continued to grow as India relies on its neighbour to import pharmaceutical raw materials to electronic parts.

India's imports from China increased from $94.57 billion in 2021-22 to $113.45 billion in FY25, while exports to China declined from $21.26 billion to $14.25 billion, the commerce ministry data showed.

Inbound shipments from China during April–July 2025 stood at $40.66 billion, up 13.1% from a year earlier. Exports to China jumped 20% to $5.76 billion during the period.

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Overall, India attracted FDI worth $81.04 billion in FY25, up 14% from the previous year, data from the commerce ministry showed. The services sector emerged as the top recipient of FDI equity inflows, accounting for 19% of the total, with investments rising nearly 41% to $9.35 billion in FY25.

However, FDI inflows into India had peaked at $84.83 billion in FY22, according to data shared by minister of state for finance Pankaj Chaudhary in the Lok Sabha on 10 March in response to a question. FDI slipped to $71.35 billion in FY23 and $71.27 billion in FY24, amid concerns over a potential global recession, economic crises triggered by geopolitical conflicts, and rising protectionist measures worldwide.

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