India takes aim at China with tighter FDI rules, showing limits of its coronavirus aid diplomacy

Chinese state firms want to pick up stakes in India’s financial services sector as valuations fall due to the pandemic
But medical supplies donated by Chinese firms that were found to be faulty and some groups blaming China for the coronavirus outbreak have only fuelled anti-Chinese sentiment

Karan Kashyap

Published: 11:00am, 22 Apr 2020

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India, which is under an extended nationwide lockdown to control the spread of the coronavirus, has been at the receiving end of alms from China.

Since the last week of March, Chinese enterprises have started to make donations of personal protective equipment (PPE) to India after Ji Rong, the spokesperson of the Chinese embassy in New Delhi, expressed solidarity with the neighbouring country. He also said mainland companies would be ready to provide further help to the best of their capability in light of the needs of the Indian side.

The Jack Ma Foundation and Alibaba Foundation have donated two sets of consignments, which include protective suits, masks, respirators and ventilators to the Indian Red Cross Society. The two foundations have included India in a list of seven countries that will receive a total of 1.7 million face masks, 165,000 test kits, ventilators, forehead thermometers and protective clothing.

Alibaba owns the South China Morning Post.

Smartphone makers Xiaomi and Vivo have also contributed N95 masks and protective suits to state governments, hospitals and police forces. Popular short-video app TikTok donated medical supplies worth more than US$13 million to the government. Chinese telecom giant Huawei has even offered India the technologies that it deployed in Hubei province to curb and monitor the spread of Covid-19, including live streaming, remote collaboration, remote temperature measurement, diagnosis and treatment.

Apart from stepping up its aid diplomacy, China has been on the prowl to acquire the assets of Indian companies that had seen a fall in their valuations due to the outbreak.

Between January and March, the People’s Bank of China (PBOC) increased its stake by 1.01 per cent in housing estate Finance Corporation Limited (HDFC) – India’s largest mortgage lender.

The Industrial and Commercial Bank of China (ICBC) and China Investment Corporation (CIC) have set aside more than US$600 million to pick up stakes in India’s financial services sector. The latest moves have deepened concerns among Indian businesses about Chinese inflows and stoked a nationalistic call to protect domestic companies from foreign takeovers, with hashtags such as #BoycottChina trending in the country a few days before the commencement of India’s nationwide lockdown on March 24.

As a result, the government on Saturday modified its foreign direct investment (FDI) policy to curb Chinese acquisitions during the pandemic. The Chinese embassy in New Delhi on Monday said 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 exceeded US$8 billion.

Stock market regulator Securities & Exchange Board of India (SEBI) has sought details of all Chinese investments in stocks. Following this directive, the three mainland banks, which have more than US$4 billion in assets in India, are contemplating an orderly exit from their Indian investments.

Gao Feng, spokesperson for China’s ministry of commerce, said India had “become an important market … and a major investment destination”. Smartphone brands Xiaomi, Oppo, Vivo and Realme have grown to account for nearly 70 per cent of sales in India.

Last year, Xiaomi invested more than US$463 million into its Indian entity. Alibaba’s investments have largely been pumped into the e-commerce platform Paytm Mall. The Chinese conglomerate has plans to invest an estimated US$8 billion in India by 2022.

As the Chinese economy shrank by 6.8 per cent in the first quarter of 2020, companies from the mainland – armed with goodwill – were hoping to prevent further large-scale damage to their apple cart in India.

Until now, the well-thought-out corporate donations have been able to ensure that India, unlike the United States, does not openly blame China for the coronavirus outbreak. However, among the 170,000 PPE kits donated on April 5, at least 50,000 pieces of equipment have failed quality tests conducted by the Defence Research and Development Organisation (DRDO) laboratory in the central Indian city of Gwalior.

The faulty consignments arrived at a time when India was facing a massive shortage of key PPE needed to fight the coronavirus pandemic. Prices of masks have more than doubled due to scarcity and production constraints in the South Asian nation.

India also used the unprecedented pandemic to shore up its relationship with the US by partially lifting a ban on the exports of anti-malaria drug hydroxychloroquine after President Donald Trump sought supplies for America.

Meanwhile, the Indian government has announced that it is rejecting all the faulty kits donated by Beijing and it will not be procuring any PPEs from China.

The risk of a looming global recession, along with 67 per cent of Indians blaming China for Covid-19 in an online survey conducted by a Bangalore-based think tank, the alms diplomacy and investments seem to be inadequate in helping Beijing tide over anti-Chinese sentiments in India.

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