China investments face security hurdle

The rejection of a proposal by the Foreign Investment Promotion Board of telecom-equipment vendor ZTE Telecom, has once again highlighted the lack of a clear-cut policy on investments from China.

Stung by the rejection of its proposal, which sought approval for wholesale trading in telecom equipment, the Chinese vendor has demanded an explanation from the government.

The ZTE's proposal was deferred at the board's (FIPB) meeting held in May and was rejected on 13 June, 2006. This is not the only case. Officials admit that the FIPB is going slow on Chinese investment proposals in the wake of security concerns raised by the National Security Council (NSC). Every week, the FIPB receives a few investment proposals from Chinese firms.

Sources said the ZTE, in its communication, has pointed out that it approached the FIPB despite the fact that wholesale trade is on the automatic route, in order to keep the government in the loop.

"The company has also said that it already operates in India and is simply seeking to expand existing activities," they added. It is learnt that the FIPB has not responded as yet.

ZTE has a fully-owned Indian subsidiary. It had sought permission to enhance its equity capital and start after-sales service and wholesale trading of telecom equipment.

Officials added that while the FIPB can reject proposals, Chinese companies can directly approach the RBI again, if the activity for which permission is sought is on the automatic route.

It is perhaps due to issues like this, that the NSC secretariat has been asked to prepare a comprehensive policy paper on national interest and security issues in the telecom sector.

Several Chinese firms' proposals have been blocked on account of security concerns. A classic example is that of Huawei Technologies, which had put in an application for foreign investment in India for a manufacturing unit about two years back, but has so far, not got the government's nod.

Similarly, an investment proposal by Hutchison for the setting up of port infrastructure in India has not managed government clearance.