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Chinese FPIs under scrutiny post Galwan

China-based Foreign Portfolio Investors (FPI), that are classified as category 1 investors (government and government-related foreign investors such as Central Banks and Sovereign Wealth Funds) that have invested in the Indian market, have come under increased scrutiny from multiple Indian agencies following the 15 June Galwan incident.

“Legal options” are being explored to “restrict” such FPIs from “manipulating” and “damaging” the Indian market in the future, especially when India is involved in a border skirmish on its Western or Easterm fronts.

As per government records, the number of category 1 FPIs that have invested in India includes 15 FPIs based in China, 98 FPIs based in Hong Kong and seven FPIs which are based in Taiwan. However, the number of Chinese category 1 FPIs is likely to be more as many of them have invested in the Indian market through the Mauritius route. The overall number of category 1 FPIs that have invested in India through Mauritius is 327.

Category 1 China-based FPIs active in India include People’s Bank of China(PBOC), National Social Security Fund of China, China International Fund Management (CIFM) and China Investment Corporation (CIC).

The National Social Security Fund is a fund of the People’s Republic of China (PRC) which serves as a strategic reserve fund that is used by China to support future social security expenditures, help the aged and other social security needs of the deprived section of the country.

The China International Fund Management, which was established in May 2004, is managed by the Shanghai International Trust which holds 51% stake in CIFM, while the rest 49% is with the JPMorgan Asset Management (UK) Limited.

China Investment Corporation (CIC) has invested in India through one of its subsidiaries, Best Investment Corporation. CIC is a sovereign wealth fund which manages a large part of China’s foreign exchange reserves. Established in 2007, with approximately US$200 billion of assets under management, it had, at the end of 2017, over US$941 billion in assets under management.

PBOC earlier this year had bought 1.01% stake in India’s biggest private home lender Housing Development Finance Corporation (HDFC) by purchasing 17.5 million shares.

Industrial and Commercial Bank of China Limited, China’s largest state-owned commercial bank, had in 2018 setup a $200 million fund for investing in start-ups in India. As of March 2019, it had invested Rs 19042053 thousandin government securities and debentures and bonds as per its filing with the Registrar of Companies, India.

Latest numbers compiled by European Fund and Asset Management Association and the US’s Investment Company Institute have revealed that China has become the world’s fifth-largest global fund investment domicile bypassing the UK and France. In the first three months of 2020, due to the massive investments that it did even as the rest of the world economies were being damaged due to Covid-19, China has now jumped from tenth to fifth position.

China is now ahead of France, the UK, Japan and Australia and now owns 4.1% of worldwide fund assets. At the end of last year, China accounted for 3.2% of global assets, compared with the UK’s 3.3% and France’s 3.7%. The US is the world’s largest fund domicile, controlling 47.9% of the market, followed by Luxembourg with 8.8%, Ireland with 5.8%, and Germany with 4.6%.

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