Govt to allow JVs with Chinese firms if Indian partner holds majority stake

The central government may relax its stance on Press Note 3 of 2020, which requires companies from countries sharing a land border with India to obtain government clearance before investing

The Indian government may soon allow new joint ventures (JVs) between Chinese and Indian companies, provided the Indian partner holds a majority shareholding, according to a report by The Economic Times.

This development comes after discussions between government officials, particularly from the Department for Promotion of Industry and Internal Trade (DPIIT), and chief executives from the electronics and automobile industries interested in forming JVs with Chinese firms.

Press Note 3 of 2020

Strict regulations were introduced in 2020 due to border tensions between India and China. Press Note 3 of 2020 was introduced at this time, which required companies from countries sharing a land border with India, like China or Bangladesh, to obtain government clearance before investing. These regulations led to the collapse of several JVs, including a $1 billion investment proposal by China’s Great Wall Motor to acquire a General Motors plant in Pune.

In 2022, reports surfaced suggesting that the central government was considering allowing Chinese companies to set up bases in India with certain conditions, though nothing materialised. At that time, the government was reportedly targeting 50-60 Indian companies for potential JVs with Chinese counterparts and considering similar ventures with firms from South Korea, Taiwan, Vietnam, and European countries.

Centre’s softening stance on JVs

According to four industry CEOs, as reported by ET, the government is now showing a softened stance towards these ventures, potentially reviving manufacturing projects that have been stalled for years. These projects, especially in the auto and electronics components sectors, are now reinitiating talks with Chinese partners, encouraged by the government’s more accommodating approach and the recent JV between MG Motor India and JSW.

Despite the government’s willingness to support such ventures, approvals will still need to adhere to Press Note 3 norms to ensure thorough scrutiny of Chinese companies and protect India’s interests. Additionally, the requirement for the Indian partner to hold a majority stake remains, ideally a dominant majority.

However, there is some reluctance from Chinese firms to share technology without clarity on their equity participation. Despite this, Indian companies have been encouraged by government officials to apply for JVs under the new guidelines, indicating a potential case-by-case relaxation of restrictions for Chinese electronics companies investing in India.