Doing business between China and India: challenges behind and opportunities ahead
Vincent Qian
Dacheng Law Offices, Beijing
China and India are the world’s two largest developing economies, possessing not only vast consumer markets but also formidable production capabilities. Their combined strengths in manufacturing, technology and infrastructure make them top destinations for foreign investment. In recent years, cross-border trade between the two nations has grown significantly, driven by the complementarity of their economic advantages and deepening commercial integration. However, entities from both countries face an ever-changing legal and regulatory landscape when investing, including policy adjustments, compliance challenges and geopolitical considerations.
To address these complexities, on 19 September 2025, the International Bar Association (IBA), through its China Working Group (CWG) and India Working Group (IWG), jointly hosted the webinar titled ‘Doing Business between China and India’. The webinar was moderated by Vincent Qian (Dacheng, Beijing), Vice Chair of the CWG and Sujoy Bahtia (C&M, New Delhi) Vice Chair of the IWG. Speakers included: Dex Lin (Foxconn, Taipei); Jerry Liu (Global Law, Shanghai); Ananya Sharma (JSW, Mumbai); and Kalpana Unadkat (Ashurst, London).
The event aimed to explore legal issues in cross-border investment, analyse opportunities and challenges, and look at how to mitigate legal and operational risks. The webinar brought together experts from the legal and business sectors of both China and India for an in-depth dialogue on investment regulation, operational practices, external risks and strategic responses. This article summarises main issues discussed during the seminar.
Investment regulation: the dual challenge of entry barriers and systematic differences
The primary challenge for Sino-Indian investment is concentrated at the regulatory level, encompassing everything from entry restrictions under India’s specific investment policies to operational friction caused by systematic differences between the two countries. These issues require careful attention from investors and were central to the discussion among several experts at the webinar.
The Press Note 3 entry barrier
Press Note 3, issued by the Indian government in 2020, is a key policy that Chinese investors cannot ignore when entering the Indian market. According to the Note, any entity from a country sharing a land border with India (including China, Nepal and five others), or any investment where the beneficial owner is from such a country, requires prior approval from the Indian government, regardless of whether it is a direct or indirect investment, greenfield project or M&A.
From a practical standpoint, this policy adds significant uncertainty to cross-border transactions. Jerry Liu pointed out that cross-border investments already require multiple approvals from Chinese authorities like the National Development and Reform Commission and the Ministry of Commerce. The approval process under Press Note 3 has no clear timeline and its outcome can be unpredictable, which greatly increases the difficulty of project planning.
It is crucial to note that using offshore platforms like Singapore or Hong Kong to circumvent this approval process is not a viable strategy. Kalpana Unadkat clarified that as long as the beneficial owner is from China, the approval process is mandatory, regardless of the investment structure. The value of offshore platforms is more apparent ‘post-approval’, as they can help reduce costs through bilateral tax treaties and safeguard interests through neutral legal environments, rather than bypassing regulations.
However, the webinar also conveyed positive signals. The Indian moderator, Sujoy Bhatia mentioned recent reports of accelerated foreign direct investment (FDI) approvals. He also noted the continued progress of projects in India by Chinese companies like TCL and Foxconn, positive engagement between the leaders of the two countries at multilateral forums, and a proposal from India’s core policy think tank, NITI Aayog, to ‘allow Chinese shareholdings of up to 24 per cent without prior government approval’. If implemented, this could be a major breakthrough toward a moderate liberalisation of Press Note 3.
Operational friction caused by systematic differences
Beyond market entry, differences in the regulatory systems of the two countries also create operational difficulties. Ananya Sharma analysed this friction from a corporate perspective, identifying three main areas:
- first, inconsistent rules for cross-border data flows. India’s Digital Personal Data Protection Act (DPDPA) of 2023 uses a ‘negative list’ approach to define the scope of data exports, whereas China requires security assessments for the transfer of ‘important data’ abroad. These dual regulations require multinational projects to continually adjust their compliance strategies for data coordination;
- second, the regular use of trade remedies. Indian anti-dumping duties on Chinese steel flat products, coupled with China’s export controls on materials like graphite, germanium and gallium, have significantly altered the profit and loss statements of affected entities; and
- third, tightening standards, certifications and financial procedures. India’s Bureau of Indian Standards (BIS) quality control audits for certain imported products (like metals) are becoming stricter, and banks are more cautious when handling China-related remittances and letters of credit, which can slow down cross-border payments.
Investment operations: policy obstacles limiting project implementation
Once an investment project clears hurdles like regulatory approval, it faces further challenges in the operational phase. Dex Lin, drawing on his end-to-end experience with a project in Telangana, and Jerry Liu, jointly broke down the core pain points of investment operations.
Land acquisition and dispute management
Land is the foundation for manufacturing investment and varying policies across Indian states present the first major test in site selection. Dex Lin noted that some Indian states only permit land leasing, while Telangana allows foreign investors to purchase land ownership. This difference was a key factor in Foxconn’s decision to establish a factory in the state, as ownership provides greater security for long-term investment.
However, successfully acquiring land is not the final step. Based on his experience, projects often face ‘demands for additional compensation’ from original landowners or villagers before construction begins, as locals generally believe that the arrival of an international company increases land value and thus demand payments exceeding the government’s established standards. To address this, Dex Lin recommended that companies conduct thorough due diligence before acquisition to clarify the compensation history and legal statute of limitations for the original land acquisition. He also advised pushing the government to erect a physical fence before the land transfer to define boundaries and reduce the risk of future disputes.
Employee visa constraints and countermeasures
The cross-border deployment of key management and technical personnel is critical for the initial construction and technology transfer phases of a project, but current visa policies in both China and India create a dual constraint. Dex Lin explained that the Indian government has a stringent review process for Chinese citizens’ visas, while the Chinese government, to prevent brain drain, also imposes certain restrictions on its citizens working in India. Companies are caught in the middle and face potential staffing risks.
Dex Lin proposed three practical strategies to tackle this dilemma. First, build a diversified management team by, for example, appointing personnel from mainland China, Taiwan and Vietnam to oversee different functions, allowing for quick replacements in response to policy changes. Second, accelerate talent localisation by actively recruiting and training local Indian talent to become the backbone of the business, fundamentally reducing reliance on expatriate staff. Third, establish a mutually beneficial government–business communication mechanism. Companies can leverage their contributions in ‘investment, employment and technology transfer’ to secure guarantees from the state government for their projects, thereby increasing the trust of India’s Ministry of Home Affairs (MHA) in visa applications. Establishing a direct communication channel with the MHA can also help address review queries promptly and improve the success rate of approvals.
Legal and cultural environment differences
The differences between the legal systems and business cultures of China and India can easily lead to compliance risks. Jerry Liu emphasised that India, as the world’s most populous common-law jurisdiction, possesses a level of legal detail that differs significantly from that of a civil-law system. He also cited a case where a minor error made by a Chinese director on a form (which would be considered a mere administrative mistake in China) triggered serious legal liability in India. This example highlights the need for investors to maintain a high degree of caution regarding compliance details when operating in India.
According to Ananya Sharma’s remarks, these differences are also reflected in specific areas like data compliance and intellectual property protection, requiring companies to rely on local legal teams rather than domestic experience. Furthermore, companies must proactively adapt to language barriers, religious customs and conflicting management styles. For instance, Dex Lin suggested that corporate management styles should gradually shift from ‘instructional’ to ‘consultative’ to advance the localisation process while respecting the local culture.
External shocks: common risks amidst the geopolitical environment
Geopolitics and the broader international landscape are profoundly shaping the investment and operational outlook for companies. The experts on the panel agreed that Chinese and Indian businesses are exposed to similar uncertainties from the same global variables, most notably volatility in the investment climate and heavy supply chain dependencies.
On the investment front, Jerry Liu pointed out that the efficiency of China’s outbound direct investment approval process is highly correlated with the overall state of international relations. When bilateral ties are tense, approvals are often delayed or tightened, hindering companies’ overseas mergers, acquisitions and expansions. When relations ease, efficiency improves markedly. This trend shows that the stability of the political environment not only affects trade but also largely determines whether investments can proceed smoothly.
Supply chain interdependence is also significant. Dex Lin mentioned that after China implemented export controls on rare earths and magnets containing them, relevant manufacturing enterprises in India immediately faced raw material supply risks, highlighting their reliance on key Chinese materials. Ananya Sharma added that China’s export restrictions on minerals like graphite, germanium and gallium have forced Indian companies to diversify risks by ‘increasing inventory and developing procurement channels in Southeast Asia’. Furthermore, the implementation of the EU’s Carbon Border Adjustment Mechanism has increased carbon accounting costs for multinational corporations, while disruptions to Red Sea shipping and rising insurance rates have further exacerbated logistics uncertainties. These global variables quickly ripple through to Chinese and Indian companies, constituting common risks for investment and operations.
Strategic responses and future paths: from corporate practice to institutional reform
In response to these multiple challenges, the webinar experts proposed practical paths forward from the dual perspectives of corporate practice and institutional reform, reaching a clear consensus.
Corporate practice: investment design and risk management
In terms of investment structuring, Kalpana Unadkat noted that while offshore jurisdictions like Hong Kong, Singapore and the UAE are not regulatory safe havens, they can enhance investor confidence. By leveraging these regions' mature bilateral tax treaties with India (such as the double taxation avoidance agreement between Singapore and India), neutral legal environments and well-established dispute resolution mechanisms, approved projects can lower costs and secure their rights.
For local operations, Dex Lin emphasised the importance of compliance management and government relations. He recommended that legal teams should be involved early in key processes like government approvals and contract signings to prevent compliance risks at the source. At the same time, government relations teams need to include local members familiar with India’s administrative system to improve communication efficiency with various levels of government. Regarding supply chain layout, companies need to cultivate local raw material suppliers in India while also developing third country sourcing channels, using a diversification strategy to mitigate the risk of supply chain disruptions.
Institutional reform: optimising the investment environment through the ‘3P Principles’
Regarding how India can attract high-tech, high-value-added investment, Kalpana Unadkat proposed a reform framework based on the ‘3P Principles’: predictable protection, predictable approvals and predictable economics. Specifically, ‘predictable protection’ requires strengthening intellectual property safeguards, such as establishing a dedicated trade secrets protection system and shortening patent litigation timelines, to give technology transferors a greater sense of security. ‘Predictable approvals’ involves clarifying the approval standards for Press Note 3, reducing redundant filings across different departments and promoting transparency in the approval process. ‘Predictable economics’ entails stabilising tariff rates and simplifying the BIS certification process to prevent companies from having to adjust their business strategies due to frequent policy changes. The Indian moderator, Sujoy Bhatia, also stated that the Indian government is promoting a ‘common growth-oriented’ economic partnership. If the ‘3P Principles’ can be translated into concrete policies, it would significantly boost the confidence of Chinese investors.
Conclusion: finding certainty in uncertainty
In retrospect, the webinar clearly outlined the challenges of two-way FDI between China and India: the entry barrier for Chinese capital under Press Note 3, the localisation difficulties at the operational level and the external shocks caused by geopolitics. But the opportunities are equally clear: China is optimising its business environment by ‘shortening the negative list for foreign investment and relaxing equity restrictions in sectors like finance and education’, and this trend creates conditions for easing systemic friction. China’s improving business environment and India’s policy relaxation form a dual foundation, with enormous potential for collaboration in industries like new energy and medical research and development. Meanwhile, strategies explored by companies, such as offshore structuring and localised teams, provide replicable practical experience for cross-border investment between the two nations.
The future of Sino-Indian investment cooperation lies not in avoiding uncertainty but in actively creating certainty. Companies need to ensure compliance and advance localisation to solidify their operational foundations. The two countries need to build a framework for cooperation by aligning rules and reforming systems. And professionals in the legal and business fields must continue to act as bridges to promote practical dialogue. China and India have vast potential and space for investment cooperation and should work together to transform challenges into mutual benefits.
The recorded webinar can be watched here.