Geopolitics of Covid 19: A scenario for India: Part 1
Chinese Investment in India
“In India, China’s tech giant companies and venture capital funds have become the primary vehicle for investments in the country — largely in tech start-ups. This is different from other emerging markets where Chinese investments are mostly in physical infrastructure. Chinese FDI into India is small at $6.2 billion, but its impact is already outsized, given the increasing penetration of tech in India.”
Although Physical investment in India by Chinese companies is comparatively lesser to its neighbours, mainly Myanmar, Sri Lanka, Pakistan and Bangladesh where they have invested heavily in developing physical infrastructure for the belt and road initiative. Most of the investment that the country receives is in the form of funding for the tech start-ups, given the deep penetration of technology in various Indian sectors (eg Tiktok owned by ByteDance, is one of the most famous apps in India, more than YouTube, Xiaomi and Huawei rounters have started being used excessively amongst the public as well). All of this points towards an attempt by the Chinese companies and funds to make strategic tech investments in the country, its mainly led by giants like Alibaba, ByteDance and Tencent which have funded nearly 92 start-ups so far in the country like Oyo, Ola , Paytm amongst others (table1).
Chinese firms have managed to embed itself in the Indian society, unlike the portliness and railway lines its constructing amongst India’s neighbours, these assets are small and invisible ( rarely Over $ 100 million) made by private sector vis-a –vie government in case of our negibours and hence is of a lesser concern. However, recently what does concern the think tanks in the country is the increasing amount of FDI the Chinese state owned companies and banks have been pumping into India, Covid 19 hit the Chinese economy early on and as a result they are well underway on the recovery part, this coupled with the crash in the India stock markets has provided them with an opportunity to buy stocks in crucial Indian sectors at less than value.
It is the result of this very concern that the government has recently changed its FDI policy, according to which an now any investments (FDI) made by any of the land neighbours of the country would have to follow strict approval procedure directed by the government.
This move has ironically received some backlash from the Chinese authorities who filed a petition in WTO against India for restricting liberal capital flows. Moreover, strategic investments by The Chinese state companies in key countries and subsequent restrictions by the host countries on such investments is not something which is new: US has an interagency committee that is set up to evaluate such investments for national security purposes, Uk and Germany recently have done the same and are monitoring flows from China.
That being said one of the main reason why Chinese funds are able to find roots in start-ups is scarcity in the availability of funds domestically, most of the start-ups rely on venture capital from abroad. Flipkart and Paytm have outrightly been bought, while some have majority of its control with Chinese investors, this creates three major concerns for the Indian economy:
1) Data Security: since most of the big Chinese companies like Alibaba have their own ecosystems (like platform/ payment gateways), there is a possibility that domestic companies that they invest in may lose control over their own data.
2) Propaganda / censorship; Investment into local, domestically entrenched companies may help the Chinese companies to push their narrative ( as they do back in mainland)
3) Platform Control: since they have their own ecosystem, they may have the power in seeing to the outcome of success for the companies they have invested in.
Due to all these factors Indian companies which are not insulated or rather receive un-adulterated Chinese investment may be open to systematic risk. So even though India has refused to participate in belt and road initiative and is still deciding on the Huawei’s entry into 5G telecom, investment in the start-ups has led the economy becoming a part of a more dangerous Virtual belt and road initiative. (fig 1)
“Over the last five years, China has quietly created a significant place for itself in India — in the technology domain. While India has refused to sign on to China’s Belt and Road Initiative (BRI), this map shows India’s positioning in the virtual BRI to be strategically invaluable for China. Nearly $4 billion in venture investments in start-ups, the online ecosystem and apps have been made by Chinese entities. This is just the beginning; there is much more to come.”
Proponents and recipients of funds under OBOR have argued for India to participate in the project and reap the mutual gains, however, they fail to look at the underlying risks involved with excessive foreign government infrastructure (both physical and digital) investments. Taking the example of few countries they have invested in:
1) Maldives: With large investments in local infrastructure and tourism, China has become a key player in Maldivian politics, and as a result undermining democracy.
2) Pakistan: The China-Pakistan Economic Corridor is a strategic play by China disguised as an economic corridor. It may bring some economic benefits to Pakistan in the short run, but will almost certainly cost the country — and India — a big political price in the long run.
3) Bangladesh: China’s investment in Bangladesh’s stock exchange gives Beijing a chance to shape the financial architecture of the most vibrant economy in India’s neighbourhood.
4) Sri lanka: China has replaced India as Sri Lanka’s biggest economic partner. It is gaining control of Sri Lanka’s ports, which can give it leverage over India’s external trade.
Concluding Remark: The excessive investments in India’s neighbourhood are a threat for not only her, but the host countries. Moreover, unprecedented scale of these investments is reshaping political arrangements around South Asia. The Covid 19 pandemic has created a lot of negative image for China, this coupled with the recent FDI revision provides a unique opportunity for India to provide balance in the South-Asia region.