Regulating The Dragon's Capital: FDI Restrictions On Chinese Investment In India Under The FEMA Framework - A Study Of Press Note 3 (2020) And Press Note 2 (2026)
Palak Tanna, Symbiosis Law School, Pune
ABSTRACT
Press Note 3 (2020 Series) issued by the Department for Promotion of Industry and Internal Trade under the Foreign Exchange Management Act, 1999 (FEMA) in April 2020, is the most impactful change to the FDI regime in India, which made the automatic route a mandatory prior approval route for all investments from and in the Land Bordering Countries. This paper explores the legal architecture established by this instrument as well as its successor in 2026 (Press Note 2), by examining the framework of rules made by the Foreign Exchange Management (Non-Debt Instruments) Rules, 2019, the Consolidated FDI Policy, and compliance frameworks under SEBI and the Prevention of Money Laundering Act, 2002. Three deals are highlighted as case studies: the split-up of Ant Group's stake in Zomato over a three-year period starting from 2023; the secondary sale of Alibaba's BigBasket stake to the Tata Group in 2021; and BYD's proposed joint venture with Megha Engineering for manufacturing EVs in Telangana. The paper suggests that Press Note 3, issued as an emergency measure, following the People's Bank of China's stake in HDFC Limited, was overly aggressive in its approach as it mandated approval for all investments in LBC, irrespective of the specific sector, without introducing any definition of beneficial ownership or a time frame for the approval. Press Note 2 (2026) has now resolved the definitional problem and brought beneficial ownership under the rubric of PMLA, but it has not addressed the underlying structural conflict between India's FDI security system and its industrial policy goals, most clearly seen in the BYD rejection.
Keywords: Foreign Direct Investment, FEMA, Press Note 3, Press Note 2, Land Bordering Countries, Beneficial Ownership, Chinese Investment, NDI Rules, SEBI, PMLA, Automatic Route, Government Approval Route.
