Belt & Road, or Belt & Suspenders?
India is the second most populous country in the world, and also the second largest market of internet users (approx. 560M). Two days ago, on April 17th, India’s trade ministry announced changes to federal rules on investment, intended to mitigate the threat of “opportunistic takeovers/acquisitions” from foreign investors. Now, investments from an entity domiciled in a bordering country will require central approval from New Dehli.
This move comes in response to the economic impacts of COVID19, a senior government official said, “These times should not be used by other countries to take over our companies.” Australia and Germany have taken similar measures to subject foreign investment proposals to a review board, in a bid to prevent fire sales and hasty takeovers.
In India, similar restrictions were already in place for investments originating from Bangladesh and Pakistan, so these changes impact investment from Afghanistan, Bhutan, Myanmar, Nepal, but really China. India has refused to sign on to China’s Belt and Road Initiative (“BRI” a.k.a. “The New Silk Road”), Xi Jinping’s extensive vision to broaden Chinese economic and political influence in Asia, Africa and Europe via direct investment.
Japan, the EU, and the US have all issued strong condemnations of the BRI, with concerns primarily focused on the sustainability of the excessive debt burdens, and the recipient countries’ ability to make interest and principal payments. Many countries have benefited from the investments in infrastructure, but a number of cases have resulted in major turnovers of assets and land:
- Tajikstan agreed in 2011 to give up 1,158 square kilometers of territory in Pamirs to China, for an unspecified amount of debt. In February 2019, the Washington Post reported of a Chinese military outpost in Shyamak, Tajik territory. With approximately $1B in outstanding debt, China remains Tajikistan’s largest creditor.
- Sri Lanka experienced a different saga of debt and corruption. Over $10M of Chinese funds were funneled to the president’s 2015 re-election campaign. After months of struggling to make loan payments, Sri Lankan authorities handed over the Hambantota port and 15,000 surrounding acres — of major commercial and military strategic value. Though they erased $1B of debt, the country is currently more in debt to China than ever before and is paying higher rates than other international lenders.
In India, local authorities have resisted taking on foreign loans for major infrastructure projects. Chinese investors adapted to these circumstances to find an alternate way into the Indian market, via technology: hardware, software, and venture capital. Chinese investors have put an estimated $4B of venture dollars into Indian tech startups. As of March, 18 of India’s 30 “Unicorns” are Chinese-funded. Internet companies like TikTok, ByteDance, Tencent, and Alibaba have experienced widespread adoption, and Chinese smartphones like Oppo, Realme, Vivo and Xiaomi dominate the market with 72% share.
Separate from venture investing, Chinese Foreign Direct Investment is relatively small ($6.2B), and these investments have often focused on strategic industries outside of technology. In recent years, Chinese pharmaceutical company Fosun acquired Gland Pharma for $1.1B, and SAIC Motor invested $310M into MG Motor India. Chinese automakers have invested $575M in India.
It will be interesting to watch the evolution of the economic relationship between the world’s two most populous countries. Does this recent policy hint at India’s wariness of China’s long-term influence on its domestic technology market, or will this prove to be just a short-term precautionary measure?
