Summary: The recent recalibration of the investment regimes on both sides suggests that businesses may once again have opportunities to explore cross-border transactions between India and China. India’s selective relaxation of its land-border investment restrictions, coupled with China’s more structured approach to outbound investment, points to an investment corridor increasingly shaped by sector-specific priorities and regulatory approvals. For investors, the opportunity lies not only in renewed engagement, but in understanding the regulatory expectations that accompany it. Transaction structures, governance rights, technology transfers, and approval requirements are issues to be considered upfront and not at the end of a deal process.
After years of strain, political engagement between New Delhi and Beijing has regained momentum, with both governments quietly redrawing the rules governing the movement of capital, technology, and commerce across their borders. The result – an unusual paradox. Just as India begins to cautiously ease restrictions on Chinese capital, China grows more selective about what leaves its shores. Earlier this year, India relaxed its foreign investment regime governing capital flows from its land-bordering countries, signaling its intent to re-engage (although selectively) with Chinese capital. China, on its part, introduced a new framework governing outbound investment and cross-border economic activity. Businesses caught at the intersection of these regulatory developments will be forced to weigh India’s willingness to admit Chinese capital against China’s willingness to permit it to leave its borders. Accordingly, understanding the evolving regulatory landscape on either side of the border is key to translating the recent thaw in India–China relations into a more meaningful cross-border capital flow.
India: Opening the Gate, Keeping the Guardrails
India’s recent regulatory recalibration may not have dismantled the post-2020 framework in its entirety, but it represents the Indian government’s first meaningful attempt to soften its framework. In April 2020, at the peak of the COVID-19 pandemic, the Union Cabinet of India issued Press Note No. 3 (2020 Series) (the “PN3”), requiring prior government approval for all investments from countries sharing a land border with India or where the beneficial owner of an investment into India is a citizen of any such country. Since Chinese investors had a significant presence in India’s start-up ecosystem, backing 18 of India’s 30-plus tech unicorns at the time, including Paytm, Swiggy, and Zomato, their future investment plans were severely impacted. Companies with Chinese capital on their cap tables were suddenly forced to revisit fundraising plans and seek alternative sources of capital in a more constrained valuation environment. Data from the Department for Promotion of Industry and Internal Trade (the “DPIIT”) suggests the scale of the impact, with cumulative foreign direct investment (“FDI”) from China falling from over USD 2.45 billion in the pre-PN3 period (2020-2021) to USD 62.16 million in the post-PN3 period between 2022 and September 2025.[1]
After more than five years of strict control, India partially relaxed the norms around PN3 in March 2026. The amendment to PN3, subsequently codified as Press Note No. 2 (2026 Series) (“PN2”), introduced two major changes:
- The investors from land-bordering countries with a non-controlling beneficial ownership of up to 10% are permitted to invest under the automatic route, subject to applicable sectoral caps under India’s FDI policy; and
- A 60-day fast-track approval mechanism has been introduced for entities falling in capital goods, electronic capital goods, electronic components, polysilicon and ingot-wafer sectors. However, availability of this fast-track route is subject to some limitations. Investments from land-bordering countries must not exceed 49% of the capital or voting rights of the investee company and majority ownership and control must remain with resident Indian citizens or entities they control.
These reforms suggest that India is seeking to ease supply-chain constraints, improve access to critical technologies, and strengthen India’s competitiveness as a manufacturing destination, while preserving control over ownership and governance.
Early impact of PN2 appears significant. According to a press release issued by the Ministry of Commerce & Industry, Government of India (the “MoC”), 29 FDI investments worth over USD 500 million involving Chinese-linked capital were reported under PN2 within three months of its coming into effect, marking the strongest inflow of Chinese capital into India since 2020.[2] While the above data includes investments from non-controlling land bordering countries with ownership of up to 10%, data from DPIIT also suggests that since the first quarter of calendar year 2026 alone, two Hong Kong-routed investments were approved. While one invested over USD 10 million into a solar power generation company through compulsorily convertible debentures, the other converted an external commercial borrowing into a majority equity stake in a professional services firm. Another approval (application made under PN3) was for Dixon Technologies’ joint venture with Vivo Mobile India Private Limited for original equipment manufacturing of electronic devices including smartphones. Another recent approval (application made under PN3) was the proposed investment by Inovance Automotive (HK), a subsidiary of China’s Suzhou Inovance Automotive, into a joint venture (51:49) with Uno Minda Auto Innovations Private Limited, to manufacture high-voltageelectric vehicle powertrain products in India, including combined charging units, e-axles, and inverters.These approvals and exemptions not only provide considerable market relief but also reaffirm India’s policy position to support their domestic electronics manufacturing sector.
Further, post-PN2, four Chinese firms, i.e., TBEA Energy, Nanjing Electric India, New Northeast Electric India, and Taikai Electric (India) have been exempted from the provisions of the public procurement rules. These rules separately require entities from India’s land-bordering countries to register with the relevant Indian authority to be eligible to bid in the procurement of goods, services, or works. This move was initiated to address supply shortages in critical areas like high-voltage transformers and gas-insulated switchgear.
Such approvals and relaxations point to a genuine (if selective) opening of the channel, with the list of sectors eligible for Chinese investment continuing to expand. Yet, even in the post-PN2 regime, executing a cross-border investment from China into India requires considerable patience and meticulous planning from the transacting parties in both countries. While the 10% beneficial ownership threshold appears to be straightforward, the position is complicated by the control test, which applies independently of the beneficial ownership threshold. For instance, a fund with a 5% Chinese limited partner may not breach the beneficial ownership threshold; however, if the partner also holds a board seat and contractual influence over management, then the entire government approval process may still get triggered.
Moreover, the 60-day fast-track mechanism is limited to only a few manufacturing sectors as mentioned above. For most potential Chinese investments, the standard 12-week timeline under DPIIT’s revised Standard Operating Procedure dated May 4, 2026 (“SOP”), applies. However, in practice, timelines have stretched well beyond that. DPIIT’s new SOP also substantially expands disclosure obligations in relation to (a) control rights; (b) board appointment rights; (c) veto rights; and (d) any rights conferring governance influence.
China: Tightening the Outbound Pipeline
China has also been tightening its oversight of outbound capital. On July 1, 2026, Premier Li Qiang enacted State Council Order No. 837 (“Decree No. 837”) as China’s first comprehensive State Council-level administrative regulation governing outbound investment. We understand that the regulation effectively brings several strands of the overseas investment regime under a single framework and signals a greater focus on national security, export controls, and risk management when Chinese capital moves abroad.
We also note that the above framework extends beyond capital flows. Article 13 of Decree No. 837 restricts the transfer of prohibited or restricted technology, services, and related data, including through the overseas deployment of technical personnel, cross-border technical guidance, and training arrangements. This underscores how intertwined technology, know-how, and technical expertise have become with China’s outbound investment regime. It appears that Article 15 of Decree No. 837 establishes a national security review mechanism covering outbound investments and subsequent transfers and disposals of overseas assets and interests that threaten China’s national security. As a result, Chinese investors may need to evaluate national security considerations through every stage of the lifecycle of an investment. More broadly, the regulation perhaps reflects China’s increasingly security-conscious approach to outbound investment and highlights the extent of geopolitical and national security considerations becoming embedded in the regulation of cross-border transactions.
On October 22, 2026, China’s National Development and Reform Commission has published revised rules on outbound direct investment, effective December 1, 2026, which expand the definition of eligible investors to include domestic enterprises, other organizations, and individual residents. These new rules act as the practical, functional blueprint designed to implement the high-level legal mandates established by Decree No. 837.
Earlier, on October 16, 2026, the Ministry of Commerce and the Ministry of Science and Technology of China announced a draft plan titled “Announcement No. 48” (the “Draft Plan”). The Draft Plan proposes to impose a complete export ban on 14 technologies and restrict 26 more related to artificial intelligence (“AI”) models, biotechnology and solar manufacturing technologies. The 14 technologies proposed for complete export prohibition under the Draft Plan include next-generation solar manufacturing technologies, AI driven technologies used to generate and mutate malicious code and platforms related to cell and gene therapy. Among the 26 listed restricted technologies, which would require additional regulatory compliance and licensing, polysilicon engineering technologies used to make solar cells (if they involve production lines with annual output capacities of 30,000 tonnes) are included. This restriction could potentially create challenges for India-China ventures seeking to benefit from the fast-track approval mechanism outlined under PN2 for polysilicon and ingot-wafer segments as priority sectors.
Therefore, this dual-layered regulatory scrutiny means that a cross-border transaction is now required to clear bureaucratic hurdles on both sides of the border before deploying any capital. India’s PN3/PN2 framework screens who comes in, and China’s Decree No. 837 controls what goes out. A deal team that plans for only one side of this equation risks being caught off guard by the other.
Beyond the Gate: From Regulatory Thaw to Deal Flow
At the 18th BRICS Summit, held in New Delhi in September 2026, the BRICS member states adopted the Delhi Declaration, which emphasized resilience, innovation, and deeper economic cooperation in an increasingly fragmented global economy. However, beyond the summit rhetoric and diplomatic headlines, India and China are quietly assembling a far more impactful regulatory architecture.
On the one hand, changes in the regulatory processes could provide a more structured regulatory environment which would provide investors with greater certainty. On the other hand, these changes also reflect the strategic calculations and deep consideration underlying the policy changes. For years, border issues, political friction, and investment restrictions have marred India–China relationship, but a significant commercial dependence and ongoing trade persist. As per the data issued by the MoC on October 15, 2026, India’s trade deficit with China increased from USD 99,195.14 million in FY 2024-25 to USD 112,149.21 million in FY 2025-26.[3] The ever-widening trade deficit with China has been a concern for India for a considerable period. At the same time, the increasing uncertainty and unpredictability in global trade and investment, including the evolving policy priorities of the United States of America, has reinforced the need for India to diversify its economic partnerships. Against this backdrop, New Delhi’s objective is no longer limited to screening Chinese capital and investment. Instead, it is now motivated to secure access to critical technologies and inputs, strengthen its domestic manufacturing capabilities, improve market access to Indian goods, and bridge its trade deficit. In pursuing these objectives, Chinese investors remain a significant and viable source of both capital and technical expertise.
Over the past year, both governments have been attempting to strike a delicate balance between economic pragmatism and strategic caution. Even as India appears to have cautiously opened its gates to Chinese participation, especially in sectors it deems critical to its political and economic ambitions, it has retained oversight over changes in ownership, governance, and control such investment brings. Similarly, China remains supportive of outbound investment but has increased its scrutiny over the capital, technology, and expertise moving beyond its borders (including recently proposing its first dedicated framework to combat cross-border corruption through the Anti-Cross-Border Corruption Law of the People’s Republic of China (Draft)). Rather than freezing each other out, both countries appear to be moving towards a more regulated form of economic engagement. The success of such economic engagement will depend on the ability of business and regulators alike to convert this framework, built on caution and pragmatism, into one capable of sustaining growth and improving business opportunities.
Even as the Tiger opens a gate (with guardrails), the Dragon maintains a policy wall before allowing any Chinese Yuan trickle out of its own country. This implies the next chapter in the India-China economic engagement and capital flows will have to carefully navigate the regulatory framework while factoring any broader geopolitical and diplomatic risks. If the businesses can successfully navigate the path created between them, the recent thaw in the India-China relationship may mark the beginning of a more mature and structured phase of economic engagement. Else, the gate may be open, but meaningful deal flow will remain on the other side of it.
For further information, please contact:
Mohit Gogia, Partner, Cyril Amarchand Mangaldas
[1] ef3274848190d0be1530251708e8f704.pdf.
[2] https://www.pib.gov.in/PressReleasePage.aspx?PRID=2301992®=48&lang=2.
[3] https://tradestat.commerce.gov.in/eidb/country_wise_ttrade.
