InvestorQ : How does the government propose to restrict FPI investments from China? I guess, the restrictions only apply to FDI not to FPI investments?
Chandralekha Desai made post

How does the government propose to restrict FPI investments from China? I guess, the restrictions only apply to FDI not to FPI investments?

Answer
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Mitali Bhutta answered.
6 months ago


You are right, the government has put regulatory curbs only on Chinese FDI but FPI investments up to 10% limit will also be monitored closely for the source of funds. Here is why. SEBI is likely to scan investment hubs like Cayman Islands and Singapore for Chinese links. Intelligence reports have suggested that significant investments routed through Luxembourg, Ireland, Cayman Islands and Singapore may be from Chinese and Hong Kong investors. Currently, 90% of funds from Hong Kong do not come directly but are routed through structures in Cayman which makes them susceptible to be fronts. In short, these so called FPIs, would set up a structure in Hong Kong and Cayman Islands (or any tax haven), raise money from Chinese investors and then deploy it in the global markets as FPIs. Ultimate Beneficial Owners (UBOs) in most cases are Chinese and this can be hard to trace.