Before Xi Jinping's likely India visit, Chinese money is pouring in

As National Security Adviser (NSA) Ajit Doval lands in Beijing on Monday for border talks with Chinese Foreign Minister Wang Yi and preparations for President Xi Jinping’s expected visit to India for the BRICS summit in September gather pace, another story is unfolding quietly in the background.

Chinese-linked capital is finding its way back into India after years of regulatory roadblocks. Just three months after India relaxed parts of its post-Galwan investment regime, more than $500 million of foreign investment linked to the revised rules has already entered the country. The diplomatic thaw between Asia’s two largest economies is increasingly being accompanied by a cautious reopening of economic channels that were largely frozen after the 2020 border clash.

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The renewed investment flows do not mean India has abandoned its security concerns. Nor do they suggest a return to the pre-2020 era of relatively unrestricted Chinese business activity. What is emerging instead is a more measured framework that allows selected investment and industrial cooperation while keeping scrutiny over strategic sectors and sensitive ownership structures.

Doval’s Beijing visit comes at a pivotal moment

Doval’s discussions with Wang Yi under the Special Representatives mechanism are officially focused on the boundary dispute. Yet the visit carries significance beyond the border question. It comes ahead of the September BRICS summit in New Delhi, where Xi Jinping is widely expected to attend despite Beijing not having formally confirmed his participation. The talks follow a series of diplomatic engagements over the past two years that have gradually restored political dialogue between the two countries.

The message from both governments has been consistent. Peace and stability along the Line of Actual Control remain essential for the broader relationship. Even amid reports of occasional tensions, India has repeatedly stressed that border tranquillity is the prerequisite for normal ties.

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That principle has increasingly translated into a wider effort to stabilise the relationship. Since late 2024, India and China have resumed direct flights, reopened channels for business travel, restarted border trade and expanded diplomatic engagement. Foreign Minister S Jaishankar’s recent discussions with Wang Yi focused not only on political issues but also on market access, supply chains and trade imbalances.

The long shadow of Press Note 3

Introduced in April 2020 after the Covid outbreak and later reinforced by the deterioration in India-China ties following Galwan, Press Note 3 required government approval for all investments from countries sharing a land border with India. Although the policy covered several countries, it was primarily aimed at China. The objective was to prevent opportunistic acquisitions of Indian assets during a period of economic stress and heightened geopolitical tensions.

The impact was immediate. Chinese investment proposals slowed sharply. Funds with even tiny Chinese shareholding found themselves trapped in approval processes. Industry groups repeatedly complained that venture capital investments, follow-on funding rounds and minority investments were being delayed despite posing little strategic risk. Many proposals remained pending for years.

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Over time, the restrictions created an unusual situation. India wanted to accelerate manufacturing, electronics production and supply-chain development. Yet many of the technologies, supplier networks and sources of capital required for those ambitions remained deeply connected to China. That issue eventually forced policymakers to reconsider the framework just when India-China ties also began improving.

The May reset

In May this year, the government introduced a significant relaxation. Investors with non-controlling Chinese or land-border-country ownership of up to 10% were allowed to invest through the automatic route. The beneficial ownership test was shifted to the investor entity level, reducing compliance hurdles for global funds that happened to have limited Chinese exposure. Certain sectors were also brought under a time-bound approval framework.

According to government data, 29 investment proposals worth nearly Rs 4,900 crore, or more than $500 million, have already been reported under the revised framework. The investments span information technology, artificial intelligence, manufacturing, pharmaceuticals, data centres, information and communication services and transport. The capital has come through entities based in jurisdictions including the United States, Mauritius, Singapore, Japan, South Korea, Luxembourg and the Cayman Islands.

What is striking is not just the amount but the speed. Within a few months of the rule change, investment that had been waiting on the sidelines began moving again.

Why India is opening the door slightly

The easing reflects economic realities as much as diplomatic considerations. India’s manufacturing ambitions increasingly depend on integration with global supply chains. In sectors such as electronics, electric vehicles, batteries, renewable energy equipment and advanced manufacturing, Chinese companies occupy critical positions in component ecosystems and production technologies.

Indian industry has repeatedly argued that a blanket restriction on all Chinese-linked investment imposes costs on domestic manufacturing. Electronics companies have sought permission for minority Chinese participation in joint ventures. Economists such as Sajjid Chinoy have argued that attracting Chinese investment into Indian manufacturing may be more productive than relying solely on tariffs against Chinese imports. The government appears to have accepted part of that argument while retaining safeguards.

The new framework does not open the floodgates to Chinese investment. Entities registered in China still require approval and strategic sectors remain subject to scrutiny. But the changes acknowledge that global capital is often interconnected and that small non-controlling Chinese stakes in international funds do not necessarily create national security risks.

The emergence of a new China playbook

Alongside the relaxation of investment rules, another trend has become visible. Instead of permitting unrestricted Chinese ownership, India increasingly appears to favour structures in which Indian companies retain control while Chinese firms contribute technology, manufacturing expertise and supply-chain access.

The approval of the Vivo-Dixon joint venture is perhaps the clearest example. Under the arrangement, Dixon holds a majority stake while Vivo remains a minority partner. Similar structures have emerged in partnerships involving display maker HKC and original design manufacturer Longcheer.

The model resembles the earlier JSW-MG transaction in the automobile sector. The underlying principle is to allow Chinese participation where it strengthens manufacturing capabilities but ensures ownership and governance remain anchored in Indian hands.

For policymakers, this offers a way to access Chinese know-how without creating concerns over strategic control. For Indian manufacturers, it provides access to technologies and industrial capabilities that would otherwise take years to build.

Diplomacy and economics are moving together

The investment thaw cannot be separated from the broader improvement in bilateral relations. Since the Modi-Xi meeting in Kazan in Russia in October 2024, the relationship has steadily moved away from the freeze that followed Galwan. Modi’s visit to Tianjin for the SCO summit last year, repeated meetings between senior officials, resumed flights, reopening of border trade and discussions on supply chains all point to a deliberate effort by both sides to stabilise ties.

That does not mean the relationship has become uncomplicated. India continues to run a trade deficit of more than $100 billion with China while it also remains concerned about market access, supply-chain vulnerabilities and security risks. Border disputes too remain unresolved despite relative stability.

But the tenor of the conversation has definitely changed. Five years ago, discussions about China centred on troop deployments, app bans and investment restrictions. Today they increasingly revolve around manufacturing partnerships, investment approvals, summit diplomacy and trade.

What Xi’s India visit would signal

If Xi Jinping attends the BRICS summit in New Delhi next month, the symbolism will extend beyond diplomacy. His presence would coincide with the strongest revival of Chinese-linked investment flows into India since the tightening of restrictions in 2020. It would also come as India pursues a more pragmatic approach towards China, seeking economic engagement where it serves Indian interests while preserving safeguards in strategic areas.

The $500 million that has already entered under the revised framework is modest compared with India’s overall investment needs. But it is an early indicator of direction. The bigger story is that India and China appear to be moving from a phase defined almost entirely by confrontation towards one characterised by selective engagement.

Doval’s trip to Beijing and the revival of investment flows are therefore not separate developments. They are two parts of the same story. As political channels reopen and summit diplomacy gathers momentum, capital is beginning to follow. Whether that turns into a larger economic rapprochement will depend on the durability of border stability and the willingness of both sides to keep managing their differences. For now, however, it appears that before Xi’s likely visit to India, Chinese-linked money is already pouring in.