Prime Minister Narendra Modi and Chinese President Xi Jinping are set to meet on the sidelines of the Shanghai Cooperation Organisation (SCO) summit in Tianjin on Sunday. The meeting comes at a critical juncture, with India considering a significant easing of restrictions on Chinese investments. Both nations are seeking to strengthen ties amid global trade disruptions triggered by US President Donald Trump’s tariff measures.
India-China business
According to officials cited by Mint, India is preparing to relax its Press Note 3 (PN-3) regime, which has required government approval for investments from neighbouring countries since 2020. The curbs were primarily aimed at China following the Galwan Valley clash. Now, New Delhi is considering allowing 20–25% Chinese investments in select non-sensitive sectors such as manufacturing, renewable energy, and auto components via the automatic route.
Sensitive areas such as defence, security, telecom and strategic infrastructure will remain out of bounds, added the report. Officials emphasised that scrutiny and surveillance would continue, with complaints handled on a case-by-case basis. The shift is being positioned as a pragmatic recalibration designed to protect strategic interests while reviving capital inflows.
Trump tariff pressures
The move comes as Trump’s tariff measures take effect. On August 7, the US imposed 50% duties on Indian goods, its highest globally, followed by an additional 25% penalty on imports of Russian oil. These steps are expected to hurt India’s labour-intensive export sectors, including textiles, leather and engineering goods. Tariff measures are forcing India to explore new markets besides US and attract alternative capital.
According to industry experts, India is also weighing participation in the China-led Regional Comprehensive Economic Partnership (RCEP), a 15-member trade bloc that could offer preferential access to a vast consumer market.
Manufacturing, renewables and jobs
In manufacturing, Chinese investments are expected to be channelled into textile machinery, electrical goods, farm equipment, and auto components. Industry bodies argue that such collaborations will boost India’s competitiveness. According to industry leaders, Chinese technology could help Indian firms enhance efficiency and scale.
Renewable energy is another focus area. India has adequate solar module manufacturing capacity but lacks depth in upstream components such as wafers, cells, and ingots. Chinese partnerships are seen as a way to close this gap and expand domestic capacity. Auto components, particularly electric vehicle parts, are also being prioritised for fresh FDI flows.
$100 billion FDI target
India currently attracts about $80 billion annually in FDI. Officials say easing restrictions on Chinese capital could help push inflows closer to the government’s $100 billion target. Commerce ministry and NITI Aayog officials held back-to-back meetings on Friday to finalise the proposals.
Queries to the ministries of commerce and external affairs remained unanswered. However, insiders stressed that the government’s intention is not to dilute national security but to boost employment and industrial competitiveness at a time of external pressure.
India-China thaw
The potential rollback of PN-3 represents the most substantial policy shift since 2020. Alongside trade moves, India has resumed tourist visas for Chinese nationals after five years and is preparing to restart direct flights to Beijing.
Bilateral trade, despite political strains, has continued to grow. Imports from China rose to $113.45 billion in FY25, up from $94.57 billion in 2021–22, while India’s exports fell to $14.25 billion from $21.26 billion. For the April–June quarter, Chinese imports surged 13.1% year-on-year, with exports from India to China also climbing 20%.