From 2015 to 2020, Chinese investors fueled India’s startup revolution. Of the 30 unicorns created by 2020, 18 had significant Chinese backing, representing 60% of the country’s most valuable startups.
Giants like Zomato, Swiggy, Paytm, Ola, Flipkart, Byju’s, and OYO received hundreds of millions in funding some up to $500 million per deal from firms like Alibaba, Tencent, and Didi.
Unlike Western VCs demanding quick returns, Chinese investors brought patient capital. They bet on India’s demographic dividend, scaling potential, and long-term market dominance. Their expertise in execution, reverse engineering, and supply-chain integration helped Indian firms move from heavy losses to profitability.
But the 2020 Galwan Valley clash changed everything. In response, India introduced Press Note 3, mandating government approval for FDI from neighboring countries effectively freezing Chinese inflows. From a peak in 2017–18, Chinese FDI plummeted to an all-time low. Major proposals, including BYD’s $1 billion EV plant and Great Wall Motors’ $1 billion investment, were rejected.
The fallout has been brutal. Nearly 200 Chinese FDI proposals remain pending, while domestic and Western funding dries up. Large-ticket deals (over $1 million) crashed from 92 in 2021 to just 15 in 2023. Indian VCs, risk-averse amid global uncertainty, shy away from deep-tech, AI, and biotech sectors requiring high-risk, long-gestation capital that Chinese investors once provided.
The Economic Survey 2024–25 warns: without fresh capital, India’s dreams of becoming a manufacturing hub, achieving Viksit Bharat goals, and creating jobs for its youth will remain unfulfilled. Over 1,123 startups collapsed by October 2025 a 30% jump from 2024 largely due to funding constraints.
Yet, trade with China tells a different story. India runs a $100 billion trade deficit, importing electronics, machinery, and solar components.
Critics ask: If we’re dependent on Chinese goods, why block their capital? Allowing Chinese firms to manufacture locally could reduce import reliance, create jobs, transfer technology, and boost exports under the China Plus One strategy.
Security concerns remain valid. Data theft, espionage risks via apps like TikTok, and dual-use infrastructure near borders fueled the 2020 ban. China’s laws grant state access to corporate data, raising sovereignty red flags.
But experts suggest a middle path:
- Cap Chinese stakes at 24% in Indian firms to prevent control.
- Allow FDI in non-strategic sectors like consumer electronics assembly and industrial components.
- Channel investments via export processing zones (EPZs) with strict monitoring.
- Promote joint ventures (e.g., Ashok Leyland–CALB battery partnership) to ensure compliance and tech transfer.
Vietnam and Indonesia have successfully adopted similar models, becoming top destinations for Chinese manufacturing FDI.
As the India-Russia-China (IRC) alliance gains traction and BRICS strengthens, India risks losing ground. Chinese firms rejected here are investing in Pakistan, Mexico, and Southeast Asia. If India doesn’t act, the next wave of unicorns may rise elsewhere.
National security is non-negotiable. But economic security matters too. India must attract Chinese capital without Chinese control through policy safeguards, sectoral limits, and robust oversight.
The doors need not swing wide open, but a smart, calibrated reopening could reignite India’s startup engine and secure its manufacturing future.
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