India Eases FDI Rules for Foreign Firms with up to 10% Chinese Investment

The Finance Ministry has issued a notification amending rules under the Foreign Exchange Management Act (FEMA), allowing certain overseas entities to invest in India under the automatic route, as per PTI report.  

The change applies to companies with up to 10% Chinese or Hong Kong shareholding and has come into effect from May 1, 2026. Investments will continue to follow sector-specific limits and conditions already prescribed. 

Cabinet-Backed Policy Shift 

The notification gives effect to a decision cleared by the Union Cabinet in March and later issued by the Department for Promotion of Industry and Internal Trade through Press Note 2 of the 2026 series.  

The revision modifies earlier provisions introduced in 2020, which had tightened scrutiny on investments linked to countries sharing land borders with India. 

Earlier Framework and Change in Scope 

Under Press Note 3 of 2020, any foreign investment involving even a single shareholding from such countries required prior government approval.  

The rule was introduced during the pandemic period. The updated framework removes this blanket requirement and limits the approval condition to specific cases. 

Entities incorporated in China, Hong Kong or other neighbouring countries are not covered under the relaxation and will continue to require approval. 

Beneficial Ownership Criteria 

The revised rules place emphasis on beneficial ownership rather than overall shareholding structure.  

The definition is aligned with the Prevention of Money-laundering Act, 2002, where controlling ownership is defined as more than 10% of shares, capital or profits. Investments below this threshold will not trigger the approval requirement. 

The notification also clarifies that multilateral institutions in which India is a member will not be treated as belonging to any specific country for this purpose. 

Read More: Adani Group Unveils Strategic Restructuring for Global Growth! 

Additional Provisions and Data 

The changes include reporting requirements for investments that do not require approval but involve such shareholding. 

Separately, the government has permitted 100% foreign investment in the insurance sector under the automatic route, including intermediaries. A cap of 20% remains for the Life Insurance Corporation (LIC). 

Official figures show China accounted for about 0.32% of total FDI equity inflows into India, amounting to roughly $2.51 billion between April 2000 and December 2025. 

Conclusion 

The amendment narrows earlier restrictions by linking them to beneficial ownership while retaining approval requirements for entities based in neighbouring countries. 

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