India could ease China investment curbs if border stays calm

India could ease its heightened scrutiny of Chinese investments if the two countries' border remains peaceful, a senior Indian official said in the first signal that the four-year-old curbs could be lifted.

Border tensions, the biggest irritant to relations between the nuclear-armed Asian giants, have eased, which could lead to improved investment ties, top industrial policy bureaucrat Rajesh Kumar Singh told Reuters on Wednesday at the annual World Economic Forum meeting in Davos, Switzerland.

In 2020, India tightened scrutiny on investments from companies based in countries it borders, adding a layer of vetting and security clearances.

The move was widely seen as retaliation for a clash between Chinese and Indian troops on their disputed, 3,800-km (2,400-mile) Himalayan frontier that killed at least 20 Indian and four Chinese soldiers, their worst military conflict in decades.

The curbs have disrupted billions of dollars of investments between the world's two most-populous countries, halting planned projects including from Chinese automakers BYD,  and Great Wall Motor.

The investment rules "could change once our relationship there stabilises because I think the border issues that we've had - the border has stabilised", Singh, secretary at the Department for Promotion of Industry and Internal Trade, said in an interview.

"On the investment side also, if things go well, I'm sure we can resume normal business."

He did not give a timeframe for a possible easing.

Asked if India's message was that Chinese investments depend on a peaceful border, Singh said, "You can't have somebody nibbling at your border while at the same time having red-carpet treatment for investments from there."

The investment curbs, he said, were a slight "step back" from India's broader opening to foreign investment in recent years. India has significantly reduced hurdles for inbound investment, lowering or scrapping foreign ownership caps in many sectors and granting automatic approvals.

Despite the border problems, China is India's largest source of imports, with bilateral trade rising 32% since tensions flared to nearly $114 billion in the fiscal year that ended in March.

Indian and Chinese troops clashed twice in 2022 even as peace talks were ongoing. New Delhi and Beijing, which fought a brief border war in 1962, have held a series of diplomatic and military talks to resolve the conflict.

The two neighbours must find a way to step back from potential confrontation in the western Himalayas, Indian Foreign Minister Subrahmanyam Jaishankar said in June.

But, Singh said, "In the last year or so, there haven't been any incidents. So I'm expressing the general hope from the business community that things will, you know, stabilise and improve."

A mechanism to review foreign investments from all countries, resembling those in the United States and Australia, is an option India could eventually consider, Singh said, adding no decision has been taken as India would want to maintain a "welcoming environment" for investments.

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