Confiscating foreign-owned assets can be enemy of Chinese investment in India

The amendment of India’s 49-year-old Enemy Property (Amendment and Validation) Act has renewed concerns over the security of Chinese-owned assets and posed an obstacle for the Indian government, which hopes to draw more overseas investment by enacting sweeping economic reforms.

Following the amendment of the Enemy Property Act, more than 9,400 “enemy” properties, left behind by people who obtained citizenship in Pakistan or China, are set to be auctioned by the Indian government, local news agency PTI reported. The report said “enemy” property refers to any property belonging to, held or managed on behalf of an enemy, an enemy subject or an enemy firm.

Although the Act mainly applies to heirs of enemy property, ensuring that the descendants of those who emigrated to Pakistan and China during Partition and afterwards will have no claim over property left behind in India, there is certainly reason for concern:

If China and India become involved in a military conflict, the assets of Chinese companies doing business in India may be confiscated by the Indian government.

It is understandable that some Chinese investors feel uneasy, although Sino-Indian relations have improved slightly since last year, when a military standoff soured bilateral ties.

In recent years, many Chinese companies, including smartphone maker Xiaomi and computer producer Lenovo, have turned their eyes toward India. In 2016, China’s direct investment in India was reportedly several times the level of the previous year. This investment created many jobs for young people in India, which faces an unemployment dilemma. However, increasing investment doesn’t necessarily mean that Chinese companies were unaware of the risks involved. Some Chinese people were scared during the border standoff. If India cannot reassure Chinese investors by taking steps to ensure the safety of their assets or personnel, the amendment of the Enemy Property Act will hit investor confidence.

Ramped-up economic reforms, such as making efforts to lure foreign investment and replacing several other taxes with the Goods and Services Tax, have been launched by the administration of Indian Prime Minister Narendra Modi to make India an attractive destination for foreign capital. But if the Enemy Property Act sparks alarm among Chinese investors and hinders India’s efforts to make itself a sound investment destination, all these other attempts would have been in vain. To rebuild investor confidence, India requires legal reform. Confiscating assets left behind by people who took citizenship of China can easily be viewed by the public as a hostile act against China and damage China’s outbound investment toward India.