Ignoring a trillion-dollar Chinese surplus or pretending that it has no impact on global investment flows does not strengthen India’s position | Photo credit: Tyrone Siu
For India, which is looking to boost its manufacturing ambitions, this development poses a difficult question. China will continue to play a central role in global trade for the foreseeable future, but how should India reconcile its need for investment and technology with its legitimate concerns about national security and sovereignty?
Discussions about China in India often lead in opposite directions, reflecting both strategic concerns and economic ambitions. Strategic thinkers point to the impasse at the borders, the increasing power inequality and the risks of financial or technological dependence. Their instinct is to err on the side of isolation. On the other hand, the development view argues that India’s ambitions require scale, capital and integration into global supply chains, and that Chinese companies, whether we approve of them or not, sit at crucial intersections of these networks. A country looking to expand electronics manufacturing, electric vehicle production and renewable energy components cannot simply ignore the fact that China dominates these sectors globally.
This dilemma was recognized in the Economic Survey 2023-24, which noted that carefully structured foreign direct investment (FDI) from China could help India join global production systems and increase domestic value addition. The research found that relying solely on imports in areas such as electronics and machinery is unlikely to create the depth needed to boost exports. In other words, rejecting Chinese investment altogether may protect political comfort, but also risks delaying India’s longer-term industrial goals.
The case of BYD
The episode about BYD, the world’s largest manufacturer of electric vehicles, offers a glimpse into this dilemma. BYD explored the possibility of significant investments in India, and while the company denied some reports of a $1 billion proposal, its interest in localizing production was widely recognized. Yet nothing moved decisively. Indian officials consistently emphasized that investment proposals from China are subject to heightened scrutiny, and the government’s messaging remained deliberately cautious. No doubt, India is keen to secure EV technology and supply chain depth, but that doesn’t mean it can compromise on safety concerns. This hesitation is justified, but it also draws attention to the question of how India’s investment policy towards China should be revised.
A better understanding of the data helps contextualize the debate. Chinese foreign direct investment in India remains remarkably small. From April 2000 to December 2024, cumulative FDI inflows were $2,506 million, barely around 0.35 percent of India’s total FDI over the period. China is nowhere near India’s top investors. The widespread perception that Chinese companies have a dominant financial footprint in India is simply not supported by the numbers. If anything, India has already kept Chinese investments limited by design.
At the same time, India’s overall FDI picture has become more complicated. India’s net foreign direct investment fell sharply to $10.6 billion in FY24 from $28 billion the year before, a decline of almost 62 percent, according to RBI data. While gross inflows improved somewhat in FY25, the longer trend is unmistakable: capital is becoming more selective and emerging markets have to work harder to attract patient, long-term investors. India cannot assume that geopolitical goodwill alone will continue to attract investment on the scale necessary to achieve its manufacturing and export goals.
Looking outside
This is where the reality of China’s surplus becomes relevant. Large amounts of Chinese capital are now looking outward, not because Chinese companies want to expand strategically, but because their domestic economy is slowing and foreign markets are offering better returns. A country like India, which hopes to reduce import dependence on batteries, solar panels and electronics, must consider whether access to capital and technology from China can be used to strengthen rather than weaken its strategic position. Today, China controls more than 60 percent of global battery production and more than 70 percent of solar supply chains. India’s energy transition goals will inevitably intersect with these sectors, and closing the door completely could hinder rather than enable self-reliance.
The challenge is therefore not whether we should accept Chinese investments, but how we should shape them. The restrictions imposed by India under Press Note 3, introduced in 2020, serve an important purpose, but have also created procedural uncertainty for investors. Approvals often take months and there is little clarity about the criteria applied. This unpredictability has a chilling effect, even on proposals that pose no real security risk.
If India wants to maximize strategic autonomy, it must view investment policy as a tool rather than a shield. A rules-based, predictable but robust screening mechanism would allow India to protect sensitive sectors while welcoming capital to areas where domestic capacity can be expanded without compromising national interests. During a media event, the Minister of Trade and Industry indicated the possibility of an update on press note 3.
None of this minimizes the seriousness of India’s geopolitical concerns. Trust between India and China remains low, and that reality will shape policy choices in the coming years. But the economic reality is equally compelling. Ignoring a trillion-dollar Chinese surplus or pretending that it has no impact on global investment flows does not strengthen India’s position; it merely leaves India out of decisions that other emerging markets are more confidently prepared to deal with.
India’s task is to move beyond a binary attitude. And it has indeed taken the first step towards a sense of normalcy in India-China relations, with Prime Minister Modi and Xi Jinping committing to expanding trade and investment ties on the sidelines of the Shanghai Cooperation Organization Summit in August 2025. A calibrated, confident approach that combines openness with well-defined safeguards offers the only credible path forward for a country that wants to grow faster, produce at scale and integrate more deeply into global value chains.
Rahman teaches at IILM Lodhi Road and Krishan Sharma teaches at Bennett University, Greater Noida
Published on December 16, 2025
#India #ignore #Chinese #FDI