Why Indian Unicorns Need Chinese Capital: A Pragmatic View on Economic Growth

Yet, following the deadly 2020 Galwan Valley clash that claimed 20 Indian soldiers, the government imposed Press Note 3, effectively freezing Chinese investments and creating a funding winter that continues to impact India's innovation ambitions.

The numbers tell a sobering story. Indian startup funding plummeted to just $2.1 billion in Q3 2025, marking a 38% year-on-year decline. Large-ticket investments above $1 million dropped dramatically from 92 deals in 2021 to merely 15 by 2024.

Meanwhile, over 1,100 startups shut down in 2025 alone, representing a 30% increase from the previous year. This funding drought has exposed a harsh reality: Indian venture capitalists lack the risk appetite that Chinese investors once demonstrated.

Chinese capital brought more than money—it offered patient, long-term investment focused on market dominance rather than quick profits. Unlike Western investors demanding rapid returns, Chinese backers understood India's demographic dividend and were willing to absorb initial losses while companies scaled.

Their global connectivity, manufacturing expertise, and access to supply chains provided Indian startups with invaluable advantages that domestic funding simply cannot replicate.

The irony deepens when examining trade flows. India's trade deficit with China ballooned to a record $99.2 billion in 2024-25, with imports reaching $113.5 billion against exports of just $14.25 billion.

If India continues importing Chinese goods at this scale, why not allow Chinese companies to manufacture locally, creating Indian jobs and reducing import dependency?

Strategic sectors like semiconductors, EV batteries, and clean energy desperately need capital infusions. A single semiconductor fabrication unit requires $2.75 billion investment, while battery manufacturing demands $750 million per facility.

India's dependence on Chinese technology in these critical areas remains overwhelming—yet investment restrictions prevent the very partnerships that could build domestic capabilities.

Recent developments suggest a policy recalibration. The Economic Survey 2024 explicitly recommended allowing Chinese FDI to boost Indian exports. NITI Aayog proposed removing mandatory approval requirements for Chinese investments up to 24%, recognizing that current restrictions hurt India more than China.

Even successful collaborations like Ashok Leyland's ₹5,000 crore partnership with Chinese battery giant CALB demonstrate how monitored, strategic partnerships can transfer technology while maintaining sovereignty.

The path forward requires balancing national security with economic pragmatism. Instead of blanket restrictions, India should permit Chinese capital in non-strategic manufacturing sectors with robust monitoring mechanisms similar to approaches adopted by Vietnam and Indonesia, which continue attracting Chinese investments while maintaining security.

With over 195,000 registered startups and aspirations to become a developed nation by 2047, India cannot afford to leave crucial capital sources untapped. The question isn't whether to allow Chinese investments, but how to structure them to maximize benefits while safeguarding national interests.

As bilateral relations show signs of thawing, now is the time for a calibrated reopening—before this funding opportunity flows to competitors who are less hesitant to seize it.