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By Venture Briks

Chinese investments in India

April 28, 2020

Covid-19, the deadly pandemic that has taken the entire world by storm, is haunting the global economy for a while now. With stocks crashed and recession on the verge, countries are searching for ways to minimize the upcoming series of damage to save the economy.

Amidst the constant surge in cases from the virus, the central government has adopted various measures to avoid further spreading. A nationwide lockdown was imposed from 25th March 2020 for 21 days and is now also extended to 3rd May 2020. With the chances of being highly uncertain on the uplifting of the lockdown, offices have been asked to function from home.

There has been a rise of startups in the country. And almost all of them are backed up through vast amounts of investments through neighboring countries. With the global economy witnessing its worst phase, it has been difficult for offices to sustain the crisis as foreign fundings and investments may get affected due to the pandemic.

However, the decision by the central government to impose restrictions on investments coming from the neighboring countries, especially China, could have a severe impact on the growing startup segment.

China holds significant investments in India’s startups. With substantial stakes in 18 out of 30 unicorns with a valuation of over $1 billion, China-linked investments in India’s tech startup sector is estimated to be $4 billion. The companies which report for huge investments by China include Big Basket, Byju’s, delivery, dream 11, Flipkart, Hike, MakeMyTrip, Ola, Oyo, Paytm Mall, Policy Bazaar, Quikr, Rivigo, Snapdeal, Swiggy, Uddan, and Zomato.

According to a report, China holds significant control over some widely used foreign apps in India. In the wake of the pandemic, the investments might have come under scrutiny as the outbreak originated in Wuhan, China.

Standing at $6.2 billion right now, Chinese FDI into India might seem not that huge, but the impact is. The tech-driven sector is outgrowing in India, and that has penetrated the disproportional impact of funding by China into Indian tech start-ups. According to the report, “Chinese funding to Indian tech start-ups is making an impact disproportionate to its value, given the deepening penetration of technology across sectors in India. TikTok, owned by ByteDance, is already one of the most popular apps in India, overtaking YouTube; Xiaomi handsets are bigger than Samsung smartphones; Huawei routers are widely used. These are investments made by nearly two dozen Chinese tech companies and funds, led by giants like Alibaba, ByteDance, and Tencent, which have funded 92 Indian start-ups, including unicorns such as Paytm, Byju’s, Oyo and Ola. China is embedded in Indian society, the economy, and the technology ecosystem that influences it.”

However small the Chinese FDI may appear, they are growing as intangible assets in small sizes that accounts for just 1,5% of the total official Chinese investments, including Hong Kong summing up for barely $100 million. This excludes the investments made by Singapore and elsewhere, which eventually adds up under the name of China. So if we include them, the actual expenditure will account for a higher amount.

If we talk about the most significant single investment by China in India, it is the $1.1 billion acquisition of Gland Pharma by Fosun in the year 2018. This entirely accounts for a massive 17.7% of the total Chinese FDI into India. Now, Gateway House has identified five other investments that exceed $100 million, which includes the $300 million investment by MG Motors.

Over 75 companies have been identified that are backed by Chinese investors. Being highly activated in India tech-space, the investments are concentrated in e-commerce, fintech, media/social media, aggregation services, and logistics.

A rapid growth in startups has been registered in India. The startups that are worth over $1 billion are majorly foreign-funded. The report claims, “Some like Flipkart and Paytm have been acquired outright. India still does not have a Sequoia or Google of its own. Reliance Industries, through Jio, is trying to replicate Alibaba’s successful model in India.”

China has large investment companies that work accordingly with their self developed ecosystem. With sound awareness of how China does not use the primary social networking site shows how authoritative the country is regarding the national data. The companies in China have their online stores, payment gateways, messaging services, etc. Given this, there are high chances that China may take the lead in advising and encouraging startups, in which it has invested a considerable amount, to adapt to the pre-existing Chinese solutions for the tech requirements. And this should be a thing of concern as the investment companies can pull the India startups into their ecosystems, which may lead to loss of control over data.