India-China reset? Relaxed rules allow Beijing to invest in India after about six years of friction

India is relaxing rules that will allow Chinese investments in the country, in a move that marks New Delhi’s push to restore economic ties with Beijing after nearly six years of friction.

The Indian cabinet approved changes to its foreign direct investment policy, allowing investments from “land frontier countries” in the manufacturing of electronic components, capital goods and solar cells, the government said in a statement on Tuesday.

While India shares borders with China, Pakistan, Nepal, Bhutan, Bangladesh and Myanmar, the restrictions were primarily aimed at limiting investments from China, the only major economy that shares its border with India.

Ties between Beijing and New Delhi had deteriorated in 2020 following the deadly border skirmish in the Galwan Valley, and India had tightened investment rules that same year.

Under the new rules, Chinese investments in Indian companies will be expedited and processed within 60 days, provided the ownership of the companies remains in the hands of Indian shareholders, the note said.

The rules also allow Chinese companies to acquire up to 10% stake in Indian companies without seeking approval from New Delhi.

“Allowing limited Chinese participation in India’s manufacturing ecosystem could make it easier for (multinational) companies to shift final assembly to India while maintaining access to Chinese inputs,” said Arpit Chaturvedi, Teneo’s South Asia advisor.

He added that this will reinforce India’s “attractiveness within the China plus one strategies” of multinational companies seeking to diversify supply chains outside of China.

Over the past six years, attempts by Chinese companies to invest in India had been thwarted by a web of security clearances from India’s foreign and home ministries.

The Indian government in its note has said that these restrictions were “negatively affecting investment flows of investors, including global funds such as PE/VC funds”, especially in cases where investors had “non-strategic and non-controlling interests”.

India also hopes the changes will improve the ease of doing business and generate greater global fund investment flows for startups and deep-tech companies.

“I would read this as a pragmatic recalibration rather than a structural reset in India-China relations,” said Reema Bhattacharya, head of Asia risk analysis, corporate risk and sustainability at Singapore-based business advisory firm Verisk Maplecroft.

However, some experts are skeptical about the impact of New Delhi’s regulatory changes on investments, as border tensions between India and China remain unresolved and broader geostrategic competition between the two persists.

“I wouldn’t expect a flood of Chinese capital into India,” said Verisk Maplecroft’s Bhattacharya.

While policy has indicated easing, Bhattacharya said Chinese companies will continue to be mindful of the risk that investment rules could be tightened again if bilateral tensions flare.

“The easing reflects economic pragmatism at a time when both countries are navigating a more fragmented global order, but deeper strategic mistrust has not disappeared,” he said.

The world’s two major economies have been slowly working to improve ties since last year. After the United States imposed 50% tariffs on India in August last year, Indian Prime Minister Narendra Modi made his first visit to China in seven years to attend the Shanghai Cooperation Organization summit.

The two countries have since taken several steps aimed at normalizing relations, including restarting flights and withdrawing troops from the border.

Chinese Foreign Minister Wang Yi said on Sunday that New Delhi and Beijing should “support each other’s BRICS presidency for the next two years” to “bring new hope to the Global South.”