The recent standoff at the Indo-China border has already seen a call for ban on Chinese products as well as uninstalling Chinese or Chinese-funded apps in India. Experts believe that this will put a hold on further tech investments in India and thus, startups need to prepare themselves.
Companies which fall under the portfolio of Chinese investors will have to look for new alternatives as their transactions will get delayed due to these macro events,” said Roma Priya, Founder of Burgeon Law.
Major Chinese investments
The Alibaba Group alone has strategic investments in Big Basket ($250 million), Paytm.com ($400 million), Paytm Mall ($150 million), Zomato ($200 million) and Snapdeal ($700 million).
Similarly, another Chinese group, Tencent Holdings has its investment in Indian firms like Byju’s ($50 million), Dream11 ($150 million), Flipkart ($300 million), Hike Messenger ($150 million), Ola ($500 million) and Swiggy ($500 million).
What makes Chinese investment attractive?
With India having the next big internet users, Chinese funds have been betting on the country’s virgin internet users and the lack of an Indian major investment fund only aids their growth.
Most of India’s startups – from Paytm to Ola and Swiggy, Zomato – are still reporting heavy losses, which means they would require investments with minimal investor pressure. “China provides the patient capital needed to support the Indian start-ups, which like any other, are loss-making. The trade-off for market share is worthwhile,” said a report by Gateway House.
Strict FDI regulations
Earlier in April, the change in FDI regulations said that prior approval of the Indian government will now be required for FDI into India (direct or indirect) by an entity of a country which shares a land border with India, i.e., China, Pakistan, Bangladesh, Nepal, Bhutan, Myanmar and Afghanistan.
However, China has for long now routed its investments through subsidiary companies. “Chinese funds and companies often route their investments in India through offices located in Singapore, Hong Kong, Mauritius etc.: for example, Alibaba’s investment in Paytm was by Alibaba Singapore Holdings Pvt. Ltd. These don’t get recorded in India’s government data as Chinese investments,” said a report by Gateway House.
However, India is set to tighten the scrutiny of foreign direct investments (FDIs) from Singapore, amid growing apprehensions that cash-rich Chinese companies could route their investments through the island nation to bypass New Delhi’s stringent FDI policy for bordering countries.