The true price of Chinese FDI in India

Author - Sriparna Pathak, professor, China Studies and International Relations, Jindal School of International Affairs, OP Jindal Global University, Sonipat.

Foreign direct investment (FDI), and bilateral and multilateral engagements have been seen as harbingers of shared growth and mutual prosperity, since the 1970s. What was envisaged and worked in some cases as well, was a classic win-win paradigm, where capital flows from developed to developing countries fostered tech transfers, job creation, infrastructure development, and economic advancement for both the investor and the host countries, underpinned by interdependence as a pacifying force reducing conflict and promoting global welfare.

FDI

However, in the current epoch of international relations, which is dominated by a retreat to realpolitik, even in the economic sphere, geopolitical rivalries, particularly with China’s State-driven investments, have transformed economic ties into tools of strategic leverage, dependency traps, weaponised interdependence and national security risks, where economic inflows entrench influence and enable technology theft, while distorting markets, and creating unsustainable debts, rather than equitably sharing prosperity.

In more recent months, there has been a clamour from certain segments of India’s business and academic circuits, advocating for greater investment from China. Some think tanks have even proposed allowing Chinese firms to acquire 24% stakes in Indian companies without stringent economic vetting. The 2024-25 Economic Survey has also explicitly pitched for FDI inflows from China to further boost India’s integration into global supply chains. Reuters has reported plans to scrap curbs on Chinese firms bidding for government contracts. However, Reuters alone has reported the apparent plans, with no statement from India confirming or denying the plans.

The push undoubtedly tries to offer a pragmatic view, as global firms adopt a China Plus One strategy, and India could see an opportunity to attract redirected investments, potentially mirroring how East Asian economies like Vietnam benefitted from Chinese FDI to enhance exports to Western countries.

However, the enthusiasm overlooks a stark history of unfulfilled promises and inherent risks. India’s past experiences with Chinese investment reveal a pattern of hype followed by disappointment. In 2014, during Xi Jinping’s visit, China pledged $100 billion in investment over five years, but actual inflows were a mere fraction, barely about $3 billion. Even before the Galwan Valley clash, Chinese FDI in India was underwhelming. According to data from early 2020, FDI from China was at $163.78 million. This was down from $ 229 million in the previous year. Post the Galwan Valley clash, there was a 68.3% drop in Chinese non-financial direct investment, to just $63.18 million in 2021. BYD’s $1 billion was derailed, and Chinese State media even labelled India as a “graveyard for foreign investment”. What Chinese State media failed to take cognisance of was the fact that FDI from Singapore, Mauritius, the US, the Netherlands, and Japan grew during 2021 and onwards. China’s unmaterialised commitments from 2014-2020, alone highlight China’s selective engagement, often prioritising leverage over genuine economic partnership. What cannot be missed is the fact, that between 2014 and 2020, Chinese FDI to the US, Germany, France, the UK, Italy, and Australia grew, while commitments to India from China remained unfulfilled.

In western countries, Chinese investments have often been found to be problematic, breeding dependency and geopolitical vulnerabilities. In the US and in countries of the EU, a fatigue emanating from decades of unfulfilled commitments to open markets and to improve investment climates is visible, with China repeatedly failing to honour agreements like third-party audits for listed companies. An example in this context is the EU’s anti-subsidy investigation into Chinese EV imports. The probe revealed massive state subsidies enabling low market pricing, distorting competition and risking dependency on Chinese supply chains for batteries and components, exacerbating Europe’s vulnerabilities in the green transition.

In India, in 2025, the Directorate General of Trade Remedies launched anti-dumping investigations into imports of solar encapsulants and photovoltaic modules, from China, based on an application by domestic firm RenewSys India, and the probe cited evidence of dumped imports at below normal values, causing material injury to the local industry, through price undercutting and suppressed domestic pricing, and this is just one example.

Under Xi, State-owned enterprises dominate, pushing sectors like energy and technology, but create unfair advantages. Opaque agreements with Chinese firms often foster high interest rates, negligible job creation and corruption. One example in this regard involves Xiaomi Technology India Pvt. Ltd., and its alleged illegal outward remittances disguised as royalty payments. In 2022, India’s Enforcement Directorate (ED) launched a probe under the Foreign Exchange Management Act (FEMA) alleging that Xiaomi remitted roughly $ 725 million at that time to three foreign entities, including one Xiaomi Group Unit, under the guise of royalty payments for intellectual property. The transactions violated FEMA by routing funds abroad without justification or transparency.

In Australia, Chinese ownership often invokes fear and anxiety with cases like Chinalco’s Rio Tinto bid highlighting institutional friction, while in Europe, there are tariffs of up to 25% on Chinese EVs due to subsidies distorting competition.

In Australia, Chinese ownership invokes "fear and anxiety," with cases like Chinalco's Rio Tinto bid highlighting institutional friction and perceptions of a "Chinese takeover." Europe faces tighter regulations amid geopolitical tensions, with the EU imposing tariffs.

These global pitfalls underscore why India has to exercise profound caution in imagining an opening up to Chinese investment. Unfettered access risks economic dependency, akin to Vietnam’s electronics ecosystem, which is now dominated by Chinese firms. Additionally, national security concerns remain paramount, as Chinese investments, as seen from myriad examples across the globe, could enable espionage, technology theft, and influence in critical sectors. Opaque deals invite corruption and erode economic sovereignty. India’s goals of being a manufacturing powerhouse demand self-reliance, and not shortcuts that entrench foreign dominance. Conditional approvals in non-sensitive sectors, with enforceable mandates for local value addition, offer a balanced path, but broad liberalisation invites peril. The clamour for Chinese investment may stem from legitimate economic pressures, but the history of broken promises and cautionary tales from other countries and India’s own examples demand restraint. Succumbing to Beijing’s allure risks trading short-term gains for long-term vulnerabilities, which is a gamble that India has to avoid.

This article is authored by Sriparna Pathak, professor, China Studies and International Relations, Jindal School of International Affairs, OP Jindal Global University, Sonipat.