Aug. 31 (Bloomberg) -- Hong Kong billionaire Li Ka-shing's Hutchison Whampoa Ltd. had its bids for Indian port projects rejected on national security grounds.

``This security clearance is mandatory and is a standard procedure,'' P. Mohana Chandran, secretary of the Mumbai Port Trust, one of the ports seeking project contractors, said in a phone interview today. He didn't elaborate on the reasons why the company failed the security procedure.

Investments by Li, the world's 10th richest man with a fortune of $18.8 billion according to Forbes magazine, have also generated national security concerns in the U.S., in part because of Li's China ties. The rejection by India comes three years after Hutchison was forced to scrap plans to buy Global Crossing Ltd. because of a U.S. national security review.

Ties between China and India, two of Asia's fastest-growing economies, have been improving in recent years with high-level government meetings and pledges to boost trade. China has also recognized some of India's territorial claims and allowed the reopening of a Himalayan land trade route.

Relations between the nations, which fought a war in 1962, aren't completely free of tension. The two have been competing globally for energy resources to feed their economies. China is the world's most populous nation with 1.3 billion people, while India ranks second with 1.07 billion people, according to data compiled by Bloomberg.

Protectionism, Concern

``Even as the bilateral relationship improves on the surface, India remains suspicious of China,'' said Joseph Cheng, a political scientist at the City University of Hong Kong. ``There's an element of protectionism and concern for strategic interests. Chinese corporations that have tried to set up shop in India to engage in software research and so on have complained about all sorts of bureaucratic delays.''

Hutchison's bid for Chennai port in southern India was also rejected.

``We do not know why it was not cleared and all I can tell you is that we got a one-line advisory saying the following bidder has not been included,'' P.C. Parida, financial adviser at Chennai Port Trust, said in a phone interview.

The port management company had received 11 initial bids for a shipping container terminal along the southern coastline, Parida said. Investments in the project, which will help the port meet surging demand for container handling, are expected to be about 5 billion rupees ($107 million), he said.

India has no blanket restriction on Chinese companies bidding for port projects in the country.

No Policy Decision

``There seems to be some misinformation that this is a larger policy,'' Mohana Chandran said in the phone interview from Mumbai. ``This is only a project-specific restriction.''

Larsen & Toubro Ltd., India's biggest engineering company, has been asked to select a new partner after Hutchison, with which it had jointly bid, failed to get clearance, he said.

Hutchison denied any knowledge of India's rejection.

``As far as we know, we haven't been barred from participating in any port projects in India,'' Anthony Tam, a Hutchison Port Holdings spokesman, said today in a phone interview. Li said Aug. 24 that Hutchison, the world's largest port operator, had never been blocked from bidding in India.

The curbs apply to Hutchison's port unit and don't mean all Chinese companies are blocked from Indian port investments, the Wall Street Journal reported, citing India's Shipping Secretary A.K. Mohapatra.

Hutchison has investments in India's telecommunications industry, which was opened to overseas ownership in a staggered liberalization of the Indian economy. Its Hutch brand operates mobile phone services in most parts of India.

To contact the reporters on this story: Ashok Bhattacharjee in New Delhi at ashokb@bloomberg.net; Joshua Fellman in Hong Kong at jfellman@bloomberg.net.

Last Updated: August 31, 2006 02:29 EDT