Coronavirus-stung world is now reviewing Chinese FDI

India has joined Australia and several European countries, including Germany, in reviewing its FDI policy with a special focus on China.

The US had begun a deeper scrutiny at the start of the start of the year itself. On January 13, the treasury department issued landmark regulations to scrutinise foreign investments into critical technology firms especially those from China, expanding the scope of the committee on foreign investment in the US and potential impact on national security of a foreign investment transaction.

The Covid outbreak in China made the others wary as countries realised how a disruption in the supply chain could impact them in case of an emergency. The fall in share prices after the stock market collapse only added to the fear. As a result, over the last one month or so country after country has been renewing its investment engagement with China. “They may not say so explicitly but the focus is China,” said an Indian government official. On March 17, Spain has enacted a royal decree mandating the need for authorisation of FDI on the grounds of security and public order.

And, a few days later on March 25, the European Commission issued guidelines to coordinate the approach of member states on FDI to protect critical assets and technologies from being controlled by overseas investors during the market disruption caused by Covid-19.

On April 8, the Italian government expanded the scope of a 2012 decree, called the Golden Power Law, to cover additional sectors such as health, energy, transport, defence, aerospace, media, data, artificial intelligence, electrical or financial infrastructure and land and real estate. The Golden Power Law allowed authorities to restrict investment by foreign nationals in certain industries. Till December 2020, the Italian government has expanded screening of acquisitions of controlling interests by EU entities from acquisitions related to defence and national security to the additional sectors.

Germany is amending its law to provide that even probable impairment to public security could result in government intervention. Australia has expanded the ambit of review of FDI proposals by lowering the threshold to Aus $0, besides saying that the timeline for clearing all proposals will now be six months. The threshold was earlier as high as Aus $1.1 billion (around US$ 750 million).

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