2024-08-21 19:14:09
The development is significant as it is the first such approval in recent times given border tensions and scrutiny of Chinese investments in India.
Notable companies that have recently received approval include Chinese electronics giant Luxshare Precision, also a supplier to Apple, and a joint venture between Bhagwati Products (Micromax) and Huaqin Technology, in which the Chinese company will hold a minority stake. Other proposals that have been approved include some Taiwanese companies that are listed in Hong Kong or have investments in Hong Kong.
“Some of them are Taiwanese companies with an actual owner who has interests in Hong Kong or is listed on the Hong Kong stock exchange, while a few are genuine Chinese companies,” said an official who declined to be named.
Pressure from the industry
The approvals come as India’s electronics manufacturing sector faces growing pressure to approve investments with Chinese ties to help broaden and deepen its supply chain.
So far, the inter-ministerial expert group has held two rounds of meetings and seven or eight proposals from various industries have been approved, most of which are from the electronics industry.
Queries and messages sent to Luxshare and Bhagwati remained unanswered till press time.
Indian businesses have been pushing for a review of trade relations with China, especially News Report 3. The Department for Promotion of Industry and Internal Trade (DPIIT) of India amended its foreign direct investment (FDI) policy in 2020 through News Report 3, requiring prior government approval for capital inflows from countries bordering India. This amendment was made in the context of the Sino-Indian border conflict in mid-2020.
The government now seems to be slowly opening up to Chinese investments with appropriate safeguards as it believes that local value addition must be increased to achieve self-sufficiency in electronics manufacturing.
Last month, The Economic Times reported that the Indian government informed the industry of its plan to set up an inter-ministerial panel to expedite approval of investment proposals from Chinese companies to invest in India or partner with Indian companies if they meet certain criteria. As mentioned above, the plan has been implemented and two rounds of meetings have been held.
“The inter-departmental team meets every six to seven weeks to assess the situation and give approval after a thorough check,” an official said.
These conditions include making it clear that investment and technology are essential to developing local manufacturing supply chains in areas such as high-tech components. In addition, no Chinese citizen can hold key executive positions in joint ventures or foreign companies operating in India. In addition, Chinese companies can only hold minority stakes in partnerships with Indian companies and in foreign companies operating in India.
According to a June 16 report by The Economic Times of India, the Indian electronics industry told the government that over the past four years, escalating tensions with China and the resulting inability of supply chain companies to obtain licenses and Chinese nationals to obtain visas have caused local manufacturers to suffer $15 billion in production losses and 100,000 people to lose their jobs.
In a submission to various ministries, the electronics manufacturing sector also said India lost export opportunities worth $10 billion and value addition opportunities worth $2 billion.
In the past, the Indian government has rejected proposals from several Chinese electronics companies to enter India. For example, Vivo wanted to introduce its component suppliers to India but was rejected. Similarly, BYD, a foundry for Apple iPad, also failed to obtain approval and chose Vietnam instead.
“Even companies based in Taiwan were not approved before in case of China problems, but that is changing now,” the official said.
For example, Shanghai-based Huaqin had previously tried to enter the Indian market through a joint venture with local electronics manufacturer Lava. But the project was shelved due to non-approval. Now the Chinese company has taken a minority stake in the joint venture with Bhagwati, according to officials. The Bhagwati-Hualin joint venture has taken over Vivo’s old manufacturing plant in Noida and is expected to start production in the coming months.
Officials added that Luxshare Precision plans to set up a manufacturing unit in Tamil Nadu, but it will not initially produce iPhones or any other Apple products.
“Apple is expected to work with existing suppliers, including Foxconn, Wistron and Pegatron, for the time being,” said another official.
In May 2020, Luxshare Precision signed an agreement with the Tamil Nadu government to take over the closed Motorola mobile phone manufacturing unit and invest approximately 750 crore rupees. In fact, in 2022, the Tamil Nadu government urged the central government to speed up the approval of the proposal.
In China, Luxshare is the second-largest iPhone maker after Foxconn. Last year, Luxshare also acquired a majority stake in a Pegatron factory in China. In India, both Wistron and Pegatron have announced plans to sell their manufacturing units to the Tata Group. Officials said Wistron’s deal has been completed and the factory is now owned by Tata, while Pegatron’s deal is in the works.
With the Indian government moving towards approving the Production Linked Incentive (PLI) scheme for electronic component manufacturing, the demand for Chinese executives and investments to set up production units in India will further increase.
The electronics manufacturing sector has sought a PLI package worth Rs 30,000-35,000 crore for manufacturing components and sub-assemblies along with capex support to support the estimated $75-80 billion demand for electronics components by 2026, thereby reducing heavy dependence on imports and improving the country’s trade deficit with China.
An industry executive previously told The Economic Times: “For some parts, the semiconductor industries of South Korea and Taiwan can help achieve technology transfer of semiconductor components, but for parts such as displays and batteries, China, which has cutting-edge technology, has made a huge contribution. If we want to localize these parts, then we will definitely need China’s help in training and skills, equipment supply, etc.”
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