Are Indian Startups too Dependent on China?
Chinese Investments: The Big Bets In Indian Startups
Chinese diverse investment is known to everyone, According to the 2018 UNCTAD World Investment Report, China held the fourth largest FDI stock in Africa in 2016 at $40 billion, behind the US at $57 billion, the UK at $55 billion, and France at $49 billion. If including Hong Kong, China’s investment stock in Africa rises to $53 billion.
Further, if we talk about Asia itself, the Chinese have invested around $1120 million in Sri Lanka, $550 million in Thailand, $2200 million in Singapore, $100 million in Indonesia, $440 million in Malaysia, $500 million in Jordan, $100 million in Israel, $3660 million in Bangladesh, $600 million in South Korea, $330 million in Pakistan, $1170 million in Japan, $140 million in Nepal and $3110 million in India.
Chinese Love for Tech Investments
According to a report, China is the biggest driver of deep technology investment growth globally, with funding increasing at an annual rate of more than 80 % from 2015 to 2018.
Deep technology companies are based on hi-tech engineering innovations; these startups or companies require significant investments to achieve commercial success. Many of these deep technologies address societal and environmental challenges and shape the way people solve some of the most typical global problems. The underlying intellectual property of deep tech innovations is usually well-protected and hard to reproduce, making it a strong competitive advantage or barrier to entry.
Different fields of deep technology where China has eyed on include advanced materials, artificial intelligence, biotechnology, blockchain, drones and robotics, photonics and electronics, and quantum computing.
Global private investment in deep tech categories reached $17.89 billion in 2018. The US and China have about 81 % of global private investment in deep tech companies, with approximately $32.8 billion by the US and $14.6 billion invested by China.
Chinese Investments in India
It was in April 1950 when the two countries established diplomatic relationships, and today the single largest Chinese investment in India is the $1.1 billion acquisition of Gland Pharma. This accounts for 17.7% of all Chinese FDI into India.
A recent report by foreign policy think tank ‘Gateway House: Indian Council on Global Relations’, has estimated China-linked investments in India’s tech startup sector alone at $4 billion.
Indian startups having significant Chinese investments include Big Basket, Byju’s, Delhivery, Dream 11, Flipkart, Hike, MakeMyTrip, Ola, Oyo, Paytm, Paytm Mall, PolicyBazzar, Quikr, Rivigo, Snapdeal, Swiggy, Udaan, Zomato.
Most of the startups in India depends on Chinese investments. The most prominent Chinese investors are Alibaba, ByteDance and Tencent, which have funded around 92 Indian startups, including unicorns such as Paytm, Byju’s, Oyo and Ola.
Chinese FDI into India is at $6.2 billion, and the impact is already outsized. Given the increasing penetration of tech in India, not only Indian startups but the Chinese startups are also investing and even ruling the Indian market.
Apps like Tik-Tok and UC browser have already given fierce competition to other players in their field. These Chinese firms are also a concern for the privacy of customers.
Today Xiaomi, a Chinese smartphone and electronics manufacturer has overtaken Samsung; Huawei routers and mobiles has captured the Indian market. China is embedded in Indian society, the economy, and the technology ecosystem.
The tech investments which are made by China are small in size, rarely over $100 million but, the number of investments made by these firms is in large amount, which gives them the access to a massive amount of data.
The Chinese Ecosystem
Building an ecosystem is the main focus of every company- the one which will be able to build it will in most cases dominate that market. Apple which has its own ecosystem includes online stores, payment gateways, messaging services, etc. An investment by a Chinese firm can pull the Indian company into this ecosystem, which may mean loss of control over data.
So, whenever these Chinese venture capitalist acquires an Indian startup, investors can encourage the startup to use pre-existing Chinese solutions for its tech requirements — again leading to loss of control over data. If this process is followed across a range of companies — a taxi service, a hotel aggregator, online retail outlets, a payment provider — it permits an intrusive, comprehensive profile of an individual and his/her habits.
Government Regulations
The government of India has always been concerned about the rapid acquisition and data leakage of Indian companies by Chinese firms. Hence different regulations have been made by the Indian government to keep the investments in check and modify it as per the situation, like recently, due to the coronavirus outbreak the government of India revised Foreign Direct Investment (FDI) norms, primarily aimed at Chinese companies, which would increase approval timelines for fresh investments from China and other related countries by as much as six-eight months.
