Chinese firms Xiaomi, Haier tap reserves, loans for expansion in India

Faced with delays in equity funding approvals, Chinese companies such as Xiaomi, SAIC, and Haier are turning to cash reserves and loans to fund their expansion plans in India

Chinese electronics and automobile companies operating in India are increasingly relying on cash reserves or loans to fund their expansion efforts, as government approvals for equity funding from their parent firms face prolonged delays, according to a report by The Economic Times.

 

Companies like Haier and Midea Group are adopting a combination of cash reserves and external commercial borrowings (ECBs) to meet their financial needs. Meanwhile, financial reports from Lenovo and Xiaomi indicate rising cash reserves and borrowings, signalling preparations to address higher working capital requirements for expansion, the news report said.

 

Chinese automaker SAIC, the owner of the MG Motor brand, previously used the ECB route before forming a joint venture (JV) with Sajjan Jindal-led JSW Group earlier this year.

 

Securing funding becomes difficult

MG Motor India initially turned to ECBs to address working capital needs amid stringent scrutiny on Chinese investments. The company later established a joint venture with JSW Group to secure funding through equity investments.

 

This is due to India’s Press Note 3 notification issued in June 2020, which mandates government approval for investments from countries sharing a land border with India, such as China. Previously, such investments were permitted through the automatic route. The rule change followed heightened tensions between the two nations after a deadly border clash in early 2020, requiring proposals to undergo multi-ministerial reviews, the report further mentioned.

 

The restrictions have impacted Chinese investments in India. However, some projects under production-linked incentive (PLI) schemes or involving partnerships with Indian firms have received approvals recently. An executive from a leading Chinese electronics firm said that equity funding from Chinese parent companies has become challenging, prompting them to rely on loans and reserves for immediate expansion, The Economic Times mentioned.

Haier and Midea’s expansion plans

Last year, Haier India applied for government clearance to receive Rs 1,000 crore as equity from its parent company to fund backward integration projects. Due to delays, Haier opted to self-finance the investment, allocating Rs 400 crore for injection moulding of air conditioners and washing machines at its Greater Noida plant. Additionally, Rs 300-400 crore is being invested in a printed circuit board plant using internal accruals and ECBs. 

 

Haier is also planning to sell a significant stake to localise operations, aligning with the government’s push for partnerships between Chinese firms and Indian entities, the report said.

 

Likewise, Midea Group is expanding its air conditioner compressor plant near Pune, managed by its GMCC division. The expansion is being funded through profits generated from Indian operations and local borrowings. GMCC, one of the largest AC compressor manufacturers globally, plans to double its production capacity to three million units annually by mid-2025 and further to six million units by 2026, requiring over Rs 300 crore in investments.