GoI’s decision to block the automatic route for approving foreign direct investments (FDI) from China has surprised many, and not just Chinese investors. But the decision was probably arrived at after much deliberation, and is meant to be used as a diplomatic lever in dealing with Beijing. The order, if implemented without any amendment, will hit a wide range of companies that have some component of Chinese investments.These firms will find their future growth plans constrained. Incidentally, the Jio-Facebook partnership would operate in this same space and hit Indian tech companies with Chinese investments.At least 18 of the top 30 unicorns have a component of Chinese investments. Nearly 1,000 Chinese companies have some presence in India. Besides, there are hundreds of small and big Indian companies who have either received Chinese investments or expect to do so in the coming year. GoI seems to be bringing back the rationale on which the Foreign Investment Promotion Board (FIPB) once operated as an assessment agency — until its abolition in 2017.Finance minister Arun Jaitley had explained, ‘With the government easing the process of doing business by eliminating discretion and adopting market mechanism for allocation of resources, the industry does not have to visit corridors of power any more.’ So, what has changed now?GoI was reportedly alarmed by a creeping investment of 1.01% of shares of HDFC, India’s biggest mortgage bank, by the People’s Bank of China (PBOC), the country’s central bank. But this may just be the right kind of excuse GoI was looking for before issuing the April 17 order. But it may have been more than a knee-jerk decision. GoI may have wanted to arm itself with the power to reject a Chinese investment proposal, or force the investment company to amend its offer. This is what happened during the FIBP era when foreign investors and fund-receiving Indian companies tried to tailor their proposals to suit the government’s temperament as much as market requirements.Welcome to the era of high-power business diplomacy with India’s embassy and consulates in China playing an important role, something perhaps expected with former Indian ambassador in Beijing S Jaishankar now foreign minister. Removing the automatic approval route will strengthen GoI’s bargaining arm with not only investing companies but also the Chinese State.In the new scenario, Chinese companies may be forced to sweeten the deal by not just offering better terms, but also adding technology licensing in the package. A recent op-ed piece in the State-backed Global Times stated that India can gain from Chinese investments in manufacturing.Compared to China, which forced hundreds of western and Japanese firms to surrender technological knowhow and pass on management secrets to their Chinese partners in return for market access, India has done little by way of bargaining.India has given the world a glimpse of its desperation for foreign investments while simultaneously fearing foreign acquisition — contradictory though these two strands may be — in quite an unsubtle manner.This may be a good time to remedy that situation, since a good part of the developed world is in the same boat when it comes to economic growth during Covid-19. The Indian move is, in fact, in line with a worldwide trend. It is also a reversal of previous thinking that Chinese companies would be eager to enter India simply because they face resistance elsewhere. Apparently, New Delhi has realised that this is not happening, particularly in manufacturing where new investments are required more urgently.Chinese diplomats are known for aggressively lobbying on behalf of companies that Beijing wants to promote globally. It has a special preference for firms like Huawei and Tencent, which are capable of making strategic use of capital by grabbing new technologies or data-shedding markets.It is interesting that the Chinese foreign ministry did not raise the issue at its regular briefing to avoid internationalising its objection to India’s new FDI norms. It was left to the Chinese embassy in New Delhi to critique the decision when it stated that the ‘barriers set by Indian side for investors from specific countries violate WTO ’s principle of non-discrimination, and go against the general trend of liberalisation and facilitation of trade and investment’.China invoked WTO and the need for global cooperation when Germany tried to impose restrictions on investments by its companies.There is nothing particularly harsh about this statement. Chinese propaganda specialists seem to have realised that most Indians now stand solidly with the Narendra Modi government’s fight against Covid-19, and any sign of aggressive criticism may result in a public outcry against China. Besides, China wouldn’t want to jeopardise future investment opportunities.But it would be dangerous to overestimate the attractiveness of the Indian market for China, and assume that the FDI rule will force it to change its stance altogether.