A logo of Chinese smartphone manufacturer Oppo hangs on a street in Bangalore, India. File Photo: Li Qian/GT

India's new Foreign Portfolio Investors (FPIs) launch amid the novel coronavirus (COVID-19) pandemic reveals an unfriendly attitude toward foreign investors and slashes confidence in Chinese businesses for future investments, industry insiders said.

Comments emerged after India said it would begin screening all foreign direct investment (FDI), a move supposedly aimed at staving off takeovers when asset prices are depressed during COVID-19, Reuters reported, citing Indian government sources.

The Global Times learned that an entity of a country, which shares a land border with India or where the beneficial owner of an investment in India is situated in or is a citizen of any such country, can invest only under the government route in sectors or activities outside of defense, space, atomic energy, and sectors or activities where foreign investment is prohibited.

This change is primarily targeted at Chinese investors who may be looking at cheap deals due to lower valuations, Mahendra Swarup, managing director of the India-based Venture Gurukool Capability Fund told the Global Times, adding that the initiative was triggered by People's Bank of China acquiring just over one percent equity of India's largest mortgage bank HDFC.

Chinese investors have a significant presence among Indian startups, investing $6 billion in the country's start-ups in the last two years, and have large stakes in over 18 unicorns, industry analysts said.

"This change had led to Chinese investors holding back their plans, and many industry bodies have written to the government to relax this rule for investment in startups and Venture Capital Funds," Swarup said. "Although there is no total ban on investments from China, they now need necessary approvals, unlike earlier when investments could come unhindered."

A source with the Chamber of Chinese enterprises in India surnamed Huang told the Global Times that the new FPIs came to their attention in early May. They have yet to receive any information or a clear interpretation of the rules.

"In order to have a better understanding about the rules, we invited groups of experts and representatives in India to gather together with Chinese enterprises to discuss about its possible outcomes," Huang said.

"We know that it has been changed to government mandatory review and they have to wait for an approval from the government for an unknown period of time," he said, adding that Indian authorities said they would distribute an implementation manual on the policy, but have yet to decide when that will happen.

"It is certainly not very friendly to China in terms of procedure and timeliness, and the investment confidence of the enterprise will certainly be impacted," Huang said, adding that Chinese investment in India will decline.

Alan Wang, a Partner at Freshfields Bruckhaus Deringer, told the Global Times that India's tougher review would not only delay deals but also expose companies to a host of uncertainties, including failure to obtain government approval.

"India does not say that it discourages Chinese investors to invest in India, but it is more cautious about Chinese investment, mainly out of a defensive mentality against Chinese companies," Wang said.

Zhang Lei, a partner with Beijing DHH Law Firm, said that India's FDI was tightened in April and now the proposed FPI increased restrictions on Chinese investment. 

"China is now the first country to contain the pandemic and India is worried that after China becomes the first to resume normal business transactions, India will still be hit by the pandemic and therefore, its assets will be bought at the bottom," Zhang said.

However, as China's investment in India is mainly through FDI, FPI, and FVCI (Foreign Venture Capital Investor), India's tightening restrictions through various channels has caused impacted India investment plans among Chinese enterprises, and many enterprises will have to make adjustments.