The Centre’s amendment of Press Note 3 (PN3) has ruffled some feathers. PN3 was issued in April 2020, placing curbs on Chinese investment in India. It was a response to the perceived threat of opportunistic takeovers of Indian businesses by Chinese companies during Covid-19.
This note amended the foreign direct investment (FDI) policy involving all countries sharing a land border with India. Ostensibly aimed at China, it subjected all FDI from such territories to government approval. Furthermore, the “transfer of ownership of any existing or future FDI in an entity in India, directly or indirectly, resulting in beneficial ownership” of entities situated in such countries was also made subject to government approval.
The government has now amended PN3 to ease Chinese investments into India. Given the current geopolitical scenario, this step is a cautious reopening rather than a reset.
At the outset, the amendment does not mark a significant change of course. In fact, this only confirms that geopolitics will continue to guide economic decisions vis-à-vis China. The government is still cautious and suspicious of investments from China.
The Economic Survey, published in July 2024, had argued in favour of easing restrictions on Chinese investment in India. Since then, several proposals have been deliberated and reported. In July 2025, NITI Aayog proposed allowing up to a 24% stake without additional security clearance.
A month later, in August, Mint reported that the Centre is considering allowing 20-25% Chinese investments in manufacturing, renewable energy and auto components through the automatic route. Later in November 2025, a high-level committee proposed allowing up to 49% cumulative investment from China in non-strategic sectors, subject to approval by a committee headed by the cabinet secretary, and allowing any single Chinese investor with a less than 10% holding through an automatic route.
Finally, in January 2026, reports suggested that the Centre is mulling over exempting investments up to 26% from screening in non-sensitive sectors.
The revised guidelines fall short of the proposals floated so far. To begin with, the amended PN3 only allows investment funds with upto 10% Chinese ownership (non-controlling) to access the automatic route. For instance, this change would allow a private equity firm in Singapore with up to 10% Chinese ownership to invest in India without seeking government approvals. The original PN3 created confusion regarding the beneficial ownership threshold, sometimes even blocking third-country investment funds with minuscule Chinese ownership. The revised guideline seeks to remove this constraint.
Second, the government has identified five manufacturing sectors — capital goods, electronic capital goods, electronic components, polysilicon, and ingot-wafer — where Chinese investment is deemed beneficial. The government has vowed to expedite decisions — approval or rejection — on proposals in these sectors within 60 days. Earlier, there were no stipulated timelines mentioned, as a result of which many investment proposals were in limbo. However, there are some caveats. Chinese investment in these sectors can only enter through joint ventures (JVs). Additionally, Chinese entities are barred from holding majority or controlling stakes in such JVs, which must be held by resident Indian citizens or by resident Indian entities owned and controlled by resident Indian citizens.
Third, investments in sectors other than these five listed in the amended PN3 will still be subject to government approval, as the original PN3 envisaged. It suggests the government remains suspicious of Chinese investments, but economic realities have forced it to make adjustments in five sectors crucial to India’s manufacturing journey. It also means that investments in electric vehicles, a sector in which China is a global leader, still require explicit government approval.
Despite these restrictions, the growing Indian market could still attract Chinese investment in the five priority sectors outlined by the government. It is also plausible that Chinese private enterprises may, in fact, favour a minority stake in JVs. Having an Indian entity with a majority and controlling stake could serve as insurance against coercive state actions in exigent circumstances or if India-China bilateral relations turn sour again.
However, from India’s standpoint, the interest of Chinese private players isn’t in doubt. The real hurdle is the willingness of the Chinese party-State. Beijing has recently adopted an increasingly protective stance on technology or capability transfer to competing countries. China, in fact, isn’t keen on vacating the space in even traditional industries to climb up the value chain in high-end manufacturing. For Beijing, the latter need not materialise at the expense of the former.
Thus, it wasn’t a surprise when China obstructed the export of certain semiconductor equipment and Foxconn engineers to India last year. Recently, according to a Bloomberg report, China’s Xiamen Hithium Energy Storage Technology Co., which was in talks with India’s Reliance to license its cell technology, withdrew from the proposed partnership “amid Beijing’s curbs on overseas technology transfers in key sectors.”
Chinese investments in India over the past five years have suffered from mutual suspicion. India fears that Chinese presence in certain sectors can become a source of strategic vulnerability. China’s apprehensions stem from its slowing economic performance. Clearly, both countries have certain preferred sectors that are no-go areas. But there’s vast space and opportunities that lie beyond those sectors. Thus, the solution perhaps lies in creating a dual negative list by the two countries and opening investment in the remaining areas. As of now, the PN3 amendment is a welcome correction.
Amit Kumar and Pranay Kotasthane are researchers of China’s economic and technological sectors, respectively, at the Takshashila Institution. The views expressed are personal
