Economy

What China Flexing Tech Muscle Means For India

The digital relationship between the Asian neighbors has rapidly evolved over the past decade, and India must now think strategically about China's ambitions in the way Western countries have been forced to do.

In Laoting, China
In Laoting, China
Ananth Krishnan

MUMBAI — For years, India's relationship with its biggest trading partner, China, has been defined by a one-sided kind of "buy-buy" — Indian hunger for Chinese machinery and equipment. In return, India exported low-grade ores to China. A trade surplus in China's favor has now crossed $50 billion out of two-way trade of around $85 billion.

While the focus of India's current trade strategy with China is to bridge the gap, chiefly by increasing exports of agricultural commodities hit by the China-US trade war, Beijing's priorities have shifted elsewhere. Since 2015, around $7 billion in Chinese funding has poured into the Indian tech sector. A dizzying range of acquisitions has now left Chinese companies as major shareholders of some of India's biggest tech companies.

Chinese tech companies have over the past two years also launched ambitious tailor-made products for the Indian market. As of last year, of the 100 most popular Android apps used in India, 44 were Chinese, including five in the top ten, such as the now popular video-sharing platform TikTok and UC Browser, said one recent report, describing it as "a Chinese takeover of the Indian app ecosystem".

India is by no means unique in this wave of Chinese tech plays and acquisitions. But what is rather curious about the Indian context is the absence of any robust debate on the implications, particularly of Chinese financing, which has now taken center stage in the West.

Just two of China's three big BAT (Baidu, Alibaba and Tencent) tech firms — Alibaba and Tencent — have invested close to $3 billion in various Indian start-ups. (The third of the group, Baidu, has been slower off the mark.)

Where is the money going? It's a pretty diverse spread. From 2015 till 2017, the biggest sectors have been e-commerce ($3 billion), transportation ($1.7 billion), fin tech ($750 million) and travel ($450 million), according to a KPMG study.

In 2015, Alibaba pumped in close to $700 million in Paytm's parent company, giving it a 40% stake. Alibaba also has investments in Snapdeal and Zomato, while Tencent has invested in Ola, Flipkart and Practo.

There's been little attention at the official level when it comes to investments in tech.

Chinese companies like ByteDance, which is behind TikTok (and the widely popular Chinese original, Douyin), is among many that see India as the next big frontier. Unlike acquisitions and investments in the West, the objectives here are slightly different — it is not about acquiring new technology (India is widely seen as lagging behind China on this front), but sharing the successes of the Chinese e-commerce experience and helping Indian companies to scale up in a similar way.

There are also concerns in China about the slowing domestic market. Just last week, Baidu CEO Robin Li warned that "winter was coming" for China's tech sector. India might also appear to be an increasingly favorable market going forward considering the increasing hostility that Chinese companies are facing in the West.

India's trade and investment strategy with China has been slow to grasp this trend. India has primarily had two areas of focus — opening up China's market, particularly for IT and pharmaceuticals and bringing in Chinese investments in greenfield infrastructure projects in India and to manufacture in India.

A lot of energy has been — and is being — expended in both areas. Both have largely failed to bear fruit for various reasons, one of which is neither suits the objectives or interests of China. Consider IT and pharmaceuticals. What China is seeking here is to develop and acquire the capacities on its own in both areas, including through acquisitions — hence, for example, Fosun's $2 billion acquisition of Indian company Gland Pharma.

Or, for instance, if we consider the fact that the only Indian IT company to be successful in China is NIIT, which isn't selling Indian IT services or products, but training tens of thousands of young Chinese in IT skills every year, so they can bolster Chinese IT companies rather than rely on Indian ones.

In contrast, there's been little attention at the official level when it comes to investments in tech. That's because understandably, India's focus was on greenfield investments. In the past two years, the Indian government has started trying to cash in on this trend and brought Indian start-ups to China on essentially fund-raising missions. But because it been behind the curve, there's also been very little regulation of what's been happening in this space.

Is this flood of Chinese money an unalloyed good? To be sure, it has benefits. The infusion of capital has allowed hundreds of Indian start-ups to scale up, thanks to their financing. So it should certainly be welcomed, in some sectors.

But are there wider, longer term concerns of Chinese companies acquiring controlling stakes in certain start-ups in certain sectors, and if so, how do we regulate the process?

This isn't — and shouldn't become — a China-specific problem.

"We need a transparent, predictable and fair regulatory framework, something along the lines of what other countries have and which does not differentiate between foreign investors based purely on nationality," said Santosh Pai, partner at Link Legal India Law Services which has advised many major Chinese companies on investing in India. He was speaking last month at the second India Forum on China, organized by the Institute of Chinese Studies, which addressed the question of dealing with this new phase of Chinese external economic engagement.

Pai argued that a regulatory framework suits the interests of both countries. "This would be beneficial not only to India's interests but something that I think Chinese companies and investors would find agreeable as well," he said.

Indeed, this isn't — and shouldn't become — a China-specific problem and the question of security applies to all companies, and not just overseas ones. It is an Indian problem of how to ensure transparent regulation. But in the rush for financing, the question of regulation has been all but ignored.

Regulation — and deciding what sectors are sensitive — isn't easy in an industry that's changing rapidly. If we consider banks to be strategically sensitive assets, is it only a matter of time before online wallets that are increasingly offering all of the services that banks do, fall in a similar category?

If so, are we okay with Alibaba, a Chinese company with close ties to the state, essentially being the biggest shareholder in India's biggest online wallet? What guarantees do users have that their data isn't finding its way to Hangzhou? Or to take that argument one step farther, considering the often blurry private-state boundaries in China: would we be okay with the Chinese state being the biggest shareholder in Paytm?

Particularly when it comes to data security, there are few safeguards. Consider the case of the Alibaba-owned UC Browser, which has a 50% market share in India and is reportedly used by more than 300 million people. The company was recently forced to issue a clarification after government reports suggested that Indian users' data was not entirely being stored in Indian servers.

Indeed, Chinese companies — and Western ones — haven't been shy about describing data as "the new oil." And for them, the Indian market is only second to China's in terms of its offerings. India also happens to be a market with among the poorest regulations and protections when it comes to data security. A fortunate combination for them. Less so for us.

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Queen Elizabeth II with UK PM Boris Johnson at a reception at Windsor Castle yesterday

Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

👋 Hej!*

Welcome to Wednesday, where chaos hits Syria, Brazilian president Jair Bolsonaro is accused of crimes against humanity and a social media giant plans to rebrand itself. For Spanish daily La Razon, reporter Paco Rodríguez takes us to the devastated town of Belchite, where visitors are reporting paranormal phenomenons.

[*Danish]

🌎  7 THINGS TO KNOW RIGHT NOW

• Syrian violence erupts: Army shelling on residential areas of the rebel-held region of northwestern Syria killed 13 people, with school children among the victims. The attack occurred shortly after a bombing killed at least 14 military personnel in Damascus. In central Syria, a blast inside an ammunition depot kills five soldiers.

• Renewed Ethiopia air raids on capital of embattled Tigray region: Ethiopian federal government forces have launched its second air strike this week on the capital of the northern Tigray. The air raids mark a sharp escalation in the near-year-old conflict between the government forces and the Tigrayan People's Liberation Front (TPLF) that killed thousands and displaced over 2 million people.

• Bolsonaro accused of crimes against humanity: A leaked draft government report concludes that Brazilian President Jair Bolsonaro should be charged with crimes against humanity, forging documents and incitement to crime, following his handling of the country's COVID-19 pandemic. The report blames Bolsonaro's administration for more than half of Brazil's 600,000 coronavirus deaths.

• Kidnappers in Haiti demand $17 million to free a missionary group: A Haitian gang that kidnapped 17 members of a Christian aid group, including five children, demanded $1million ransom per person. Most of those being held are Americans; one is Canadian.

• Putin bows out of COP26 in Glasgow: Russian President Vladimir Putin will not fly to Glasgow to attend the COP26 climate summit. A setback for host Britain's hopes of getting support from major powers for a more radical plan to tackle climate change.

• Queen Elizabeth II cancels trip over health concerns: The 95-year-old British monarch has cancelled a visit to Northern Ireland after she was advised by her doctors to rest for the next few days. Buckingham Palace assured the queen, who attended public events yesterday, was "in good spirits."

• A new name for Facebook? According to a report by The Verge website, Mark Zuckerberg's social media giant is planning on changing the company's name next week, to reflect its focus on building the "metaverse," a virtual reality version of the internet.

🗞️  FRONT PAGE

"Oil price rise causes earthquake," titles Portuguese daily Jornal I as surging demand coupled with supply shortage have driven oil prices to seven-year highs at more than $80 per barrel.

#️⃣  BY THE NUMBERS

98

For the first time women judges have been appointed to Egypt's State Council, one of the country's main judicial bodies. The council's chief judge, Mohammed Hossam el-Din, welcomed the 98 new judges in a celebratory event in Cairo. Since its inception in 1946, the State Council has been exclusively male and until now actively rejected female applicants.

📰  STORY OF THE DAY

Spanish civil war town now a paranormal attraction

Ghosts from Spain's murderous 1930s civil war are said to roam the ruins of Belchite outside Zaragoza. Tourists are intrigued and can book a special visit to the town, reports Paco Rodríguez in Madrid-based daily La Razon.

🏚️ Between August 24 and September 6, 1937, during the Spanish Civil War, more than 5,000 people died in 14 days of intense fighting in Belchite in north-eastern Spain, and the town was flattened. The fighting began on the outskirts and ended in house-to-house fighting. Almost half the town's 3,100 residents died in the struggle. The war annihilated centuries of village history. The town was never rebuilt, though a Pueblo Nuevo (or new town) was built by the old one.

😱 Belchite became an open-air museum of the horror of the civil war of 1936-39, which left 300,000 dead and wounds that have yet to heal or, for some today, mustn't. For many locals, the battle of Belchite has yet to end, judging by reports of paranormal incidents. Some insist they have heard the screams of falling soldiers, while others say the Count of Belchite wanders the streets, unable to find a resting place after his corpse was exhumed.

🎟️ Ordinary visitors have encountered unusual situations. Currently, you can only visit Belchite at set times every day, with prior booking. More daring visitors can also visit at 10 p.m. on weekends. Your ticket does not include a guaranteed paranormal experience, but many visitors insist strange things have happened to them. These include sudden changes of temperature or the strange feeling of being observed from a street corner or a window. Furthermore, such phenomena increase as evening falls, as if night brought the devastated town to life.

➡️ Read more on Worldcrunch.com

📣 VERBATIM

We still cling to the past because back then we had security, which is the main thing that's missing in Libya today.

— Fethi al-Ahmar, an engineer living in the Libyan desert town Bani Walid, told AFP, as the country today marks the 10-year anniversary of the death of dictator Muammar Gaddafi. The leader who had reigned for 42 years over Libya was toppled in a revolt inspired by the Arab Spring uprisings and later killed by rebels. Some hope the presidential elections set in December can help the country turn the page on a decade of chaos and instability.

🇮🇷🎓  IN OTHER NEWS

Iran to offer Master's and PhD in morality enforcement

Iran will create new "master's and doctorate" programs to train state morality agents checking on people's public conduct and attire, according to several Persian-language news sources.

Mehran Samadi, a senior official of the Headquarters to Enjoin Virtues and Proscribe Vices (Amr-e be ma'ruf va nahy az monkar) said "anyone who wants to enjoin virtues must have the knowledge," the London-based broadcaster Iran International reported, citing reports from Iran.

The morality patrols, in force since the 1979 revolution, tend to focus mostly on young people and women, particularly the public appearance for the latter. Loose headscarves will send women straight to a police station, often in humiliating conditions. Five years ago, the regime announced a new force of some 7,000 additional agents checking on women's hijabs and other standards of dress and behavior.

Last week, for example, Tehran police revealed that they had "disciplined" agents who had been filmed forcefully shoving a girl into a van. Such incidents may increase under the new, conservative president, Ibrahim Raisi.

Speaking about the new academic discipline, Samadi said morals go "much further than headscarves and modesty," and those earning graduate degrees would teach agents "what the priorities are."

Iran's Islamic regime, under the guidance of Shia jurists, continuously fine tunes notions of "proper" conduct — and calibrates its own, interventionist authority. More recently the traffic police chief said women were not allowed to ride motorbikes, and "would be stopped," Prague-based Radio Farda reported.

Days before, a cleric in the holy city of Qom in central Iran insisted that people must be vaccinated by a medic of the same sex "as often as possible," and if not, there should be no pictures of mixed-sex vaccinations.

✍️ Newsletter by Anne-Sophie Goninet, Jane Herbelin and Bertrand Hauger

Thoughts on Facebook's new name? Zuckerverse? Tell us how the news look in your corner of the world: Drop us a note at info@worldcrunch.com!

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