India-China border dispute: tensions likely to increase scrutiny of Chinese investment, analysts say

Trade groups in India are urging boycotts of Chinese-made products and reviews of Chinese investment following a deadly clash between troops

But China-India trade and investment is still relatively small, so analysts say it is unlikely to have major impact on China’s economy

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Trade groups and officials in India are urging boycotts of Chinese-made products following a clash between troops from the two countries. Photo: Reuters

Published: 8:15pm, 19 Jun 2020Updated: 12:02pm, 23 Jun 2020

Restrictions on Chinese trade and investment in India are expected to increase following a deadly clash between troops along their shared border on Monday, analysts said.

Local trade groups and officials in India are urging boycotts of Chinese-made products and new reviews of Chinese investment following the major escalation of a weeks-long standoff between the two countries in the western Himalayas.

However, the size of Chinese trade and investment in the country is still relatively small, so the expected reduction will not have a major impact on the Chinese economy, analysts said.

Hostility towards Chinese investment in India was on the rise even before Monday’s confrontation.

Foreign direct investment (FDI) from China has been dealt with suspicion in the last several months. I think it will definitely be increasingly difficult because of anti-China sentiment

Nikhil Narendran

In April, New Delhi tightened its foreign investment law, a move widely seen as targeting China. The new law requires firms from neighbouring countries - specifically China, Pakistan, Bangladesh, Myanmar, Bhutan, Nepal, and Afghanistan - that want to invest in Indian companies to first get government approval.

The Brookings Institute, a Washington-based think tank, estimated that Chinese companies’ total investment in India reached more than US$26 billion as of March this year. But the escalation in anti-China sentiment in India caused by the recent skirmish would deter further Chinese investment in the country, perhaps significantly, analysts said.

“Foreign direct investment (FDI) from China has been dealt with suspicion in the last several months. I think it will definitely be increasingly difficult because of anti-China sentiment, even in the bureaucracy,” said Nikhil Narendran, partner in Trilegal, a law firm based in Bangalore.