India Eases FDI Norms for Firms with 10% Chinese Stake

The Government of India has relaxed foreign direct investment (FDI) rules to allow overseas companies with up to 10 per cent Chinese shareholding to invest in India through the automatic route. The change was notified by the Department for Promotion of Industry and Internal Trade (DPIIT) and aims to ease investment flows while retaining safeguards against strategic risks. The relaxation follows approval from the Union Cabinet and modifies restrictions introduced during the Covid-19 pandemic.

Key change in the FDI policy

Under the revised policy, foreign companies with Chinese shareholding of up to 10 per cent will be permitted to invest in India without seeking prior government approval. These investments will continue to be subject to sectoral caps and existing regulatory conditions. However, the relaxation does not apply to entities incorporated in China, Hong Kong, or any country that shares a land border with India.

Definition of beneficial ownership

The DPIIT notification clarified the meaning of “beneficial owner” in such investments. The term refers to the beneficial owner of an investor entity incorporated in a country that does not share a land border with India. The definition aligns with Section 2(1)(fa) of the Prevention of Money-laundering Act (PMLA), 2002. Under PMLA rules, controlling ownership generally refers to entitlement to more than 10 per cent of shares, capital, or profits in a company.

Additional compliance and reporting rules

Even where investments qualify for the automatic route, entities with direct or indirect ownership links to individuals or firms from land-bordering countries must follow additional reporting requirements. These will be governed by the standard operating procedure issued by DPIIT to ensure transparency and monitoring of such investments.

Important Facts for Exams

• Press Note 3 of 2020 introduced stricter FDI rules requiring approval for investments from countries sharing land borders with India.
• Countries sharing land borders with India include China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar, and Afghanistan.
• The definition of “beneficial owner” in investment rules aligns with provisions under the Prevention of Money-laundering Act, 2002.
• China accounts for about USD 2.51 billion in FDI equity inflows to India between April 2000 and December 2025.

Background and expected impact

The earlier restrictions were introduced in April 2020 to prevent opportunistic takeovers of Indian companies during the Covid-19 pandemic. The policy particularly affected global private equity and venture capital funds that had minor Chinese or Hong Kong shareholding. The revised norms aim to ease investment flows while retaining scrutiny mechanisms. Additionally, FDI proposals from land-bordering countries in specific sectors will be processed through an expedited approval system with a 60-day timeline.