CHECK ON THE DRAGON
It all started with a seemingly innocuous transaction on April 12 when state-owned People’s Bank of China (PBoC) bought an additional 0.2 per cent stake in HDFC Ltd., India’s largest housing finance company. Added to PBoC’s existing 0.8 per cent stake, this took the Chinese bank’s equity past 1 per cent — triggering a notification to stock exchange regulator, the Securities and Exchange Board of India (Sebi).
A registered foreign institutional investor (FII) buying a stake in HDFC is perfectly legal. It was also a smart bargain. Stock markets in the world had been topsy-turvy and till that day HDFC Ltd. had seen 32 per cent erosion in market cap since the market crash triggered by the spread of coronavirus.
Yet, the transaction rang alarm bells at Sebi coming, as it did, amid allegations of Chinese firms exploiting market crash to corner stakes in strategic firms of vulnerable economies. The market regulator played safe and promptly shot off a missive to the finance ministry seeking guidance. It asked if such transactions needed special attention.
In Delhi, its chain reaction continues to unravel till this day. Taking note of the threat posed by Chinese firms to companies in India that may be vulnerable due to economic stagnation because of coronavirus, on April 17, the commerce ministry’s Department for Promotion of Industry and Internal Trade (DPIIT) amended foreign direct investment (FDI) guidelines to apply curbs on investments from China. Aimed at preventing any opportunistic takeover from across the border, any fresh FDI from China now requires a specific nod from the government.
Taking a cue, Sebi wrote to custodians the very next day, seeking details of foreign portfolio investments (FPIs) from China, Hong Kong and 11 other Asian countries. While there are no restrictions on Chinese FPIs investing in Indian companies yet, Sebi specifically wants custodians to determine the level of control these investors exercise.
Even though investments – FDI, FII or FPI – from China have not been blocked yet, this has not gone down well with China. The Chinese Embassy in Delhi, in an angry response, demanded that India revise the policy, calling it ‘discriminatory’ and in ‘violation of WTO’ rules.
“The impact of the policy on Chinese investors is clear. The additional barriers set by the Indian side for investors from specific countries violate the WTO’s principle of non-discrimination, and goes against the general trend of liberalisation and facilitation of trade and investment. More importantly, they do not conform to the consensus of G20 leaders and trade ministers to realise a free, fair, non-discriminatory, transparent, predictable and stable trade and investment environment, and to keep our markets open,” said Chinese embassy spokesperson counsellor Ji Rong. “Companies make choices based on market principles. We hope India would revise relevant discriminatory practices, treat investments from different countries equally, and foster an open, fair and equitable business environment.”
India remains unmoved and combative. “It does not violate any WTO guideline in any way. We are well within our rights to formulate or tweak any policy. Just to be clear, we are not blocking any investment,
