On Sunday, many Indian citizens, for the first time, woke up to the grim reality of growing Chinese investments in the country. Media reports surfaced about the People’s Bank of China (PBoC) raising its stake in one of the largest private banks in India, HDFC, from 0.8 per cent to more than 1 per cent.
There is no law that prohibits investments by China’s central bank in any Indian entity. Also, given the investment was a secondary market transaction, there was no role of the HDFC in the whole process. Given that the PBoC stake exceeded the 1 per cent threshold, HDFC was required to disclose PBoC’s name in order to comply with the regulations.
To put things in perspective, a 1 per cent stake in HDFC amounts to 17.5 million shares, valued at around Rs 2,900 crore. Given HDFC’s share price has fallen from Rs 2,500 to Rs 1,500 due to the Covid-19 outbreak, PBoC saw this as an opportunity to raise its investment.
Assuming PBoC’s stake to be in the neighbourhood of $380 million at the current exchange rate, the investment is merely a drop in the ocean given PBoC holds more than $5.2 trillion worth of assets. Apart from the assets held by PBoC, many state and private firms of China have another $2 trillion worth of investments across the globe, according to the data compiled by the American Enterprise Institute.
Thus, much ado about nothing is being about the stake for if PBoC wanted to, it could have raised its investment further. Much of the apprehension stems from the debt-traps that China has become infamous for under their Belt and Road initiative. Fearing another such long-term objective, the people voiced their concerns online, though much of their fears were misplaced.
However, the misplaced fear is best directed towards China’s increasing investments in the technology sector in India, for they could be now in a position to cause much more damage by the data they have access to than a mere 1 per cent stake in a private bank.
According to the data compiled by the American Enterprise Institute, Chinese firms have significant stakes in Zomato, Swiggy, One97-the parent company of Paytm, BigBasket, Snapdeal, Paytm Mall and Ola.
In March 2017, Alibaba its stake in Snapdeal at the cost of $177 million. The objective of this investment was to take on Amazon’s growing clout in India and to tackle Flipkart, then a local leader in e-commerce. The next month, in April 2017, Tencent, $700 million in Flipkart. Tencent, globally, is one of the biggest competitors of Alibaba.
Interestingly, before Alibaba, BigBasket had been in talks with Amazon but for fresh capital. The talks broke down due to differing opinions on BigBasket’s valuation. In the same month, one of Alibaba’s investing arms another $200 million in Zomato. In October, the same arm another $210 million in Zomato.
With Alibaba pumping money in Zomato, Tencent took the opportunity to invest in its competitor, Swiggy.
In December 2018, Swiggy more than $1.1 billion and as per the American Enterprise Institute, Tencent’s share constituted about 15 per cent of the total investment. Naspers, then owning a 33 per cent stake in Tencent, was one of the major investors in the deal.
The clout of Chinese investments to many other startups and unicorns in India. These include Byju’s, Dream 11, Hike Messenger, Oyo, CarDekho, Policy Bazaar, Quikr, Rivigo, Rapido, MX Player, Practo, and many more across different sectors.
China’s love for Indian startups can be gauged by the increased investments which from a mere $459 million in 2016 to around $3.9 billion in 2019. In 2018, China’s investment had been a little over $2 billion.
The investments extend to the hardware that enables these applications as well. Already, brands like Xiaomi, Vivo, Oppo, OnePlus, and Realme have consolidated their hold in the Indian market by virtue of cheap pricing and decent handsets at throwaway prices. Apple and Samsung, with their highly-priced feature phones, have failed to capitalise on the Internet revolution ushered in by Jio in India.
Thus, a considerable threat to India’s digital sovereignty will not stem from PBoC’s one per cent stake in HDFC, but the stake many Chinese companies have in the apps that are integral to our routine. Even if one does not use any of the Chinese mobile brands, there are ample apps that generate user data which when combined with data from other apps or the phone itself could pose a threat to individual privacy.
The threat will be aggravated by the Covid-19 induced slowdown as many startups may again turn to the likes of Alibaba and Tencent to raise fresh capital. In the slowdown that has engulfed everyone but China, many startups are already reporting heavy losses while some e-commerce ventures are seeing their audience grow. In either case, fresh capital would be paramount.
The conglomerates there may use the slowdown as an excuse to further raise stakes in many Indian startups as PBoC did with HDFC. What complicates matters further is that unlike HDFC, most of these non-listed tech firms will not be required to disclose the stake of Chinese giants unless they themselves choose to go public.
The consequences for India’s citizens, companies, and the tech ecosystem are plenty.
First, there is no public knowledge about how the data, generated by citizens accessing these apps daily, is used. For instance, data from multiple apps, sourced from a single phone number or unique device ID, could be used for profiling.
However, this is merely the tip of the iceberg, for China’s progress in data analytics and artificial intelligence parallels that of the United States. In any case, the citizens’ data would be under threat.
Two, using this data, the Chinese could gain a head start when it comes to designing 5G solutions. Given how integral data would be to 5G and other IoT solutions, the non-personal datasets from these apps will give Tencent and Alibaba a significant advantage over the local IT giants. Further, it could complement China’s push for Huawei in the Indian market.
Lastly, there is the danger of agenda-setting through Chinese apps. As seen with TikTok, the apps can be used to polarise citizens, circulate anti-India rhetoric, and cause an internal security issue by means of hacking, data breaches, or misinformation campaigns. Given India will have a billion active Internet users by 2024, Chinese dominance in the digital realm showcases India’s understated vulnerability.
China’s strategic investments in India’s telecom and technology sector must be seen as a small part of its great technological war with the US. However, the US has excelled in capacity building and has the quad of GAFA (Google, Apple, Facebook and Amazon) to protect its domestic interests and dominate the global ecosystem.
India, meanwhile, has not done much for capacity building and only recently the government realised the importance of an indigenous video conferencing solution. The push for data localisation has not been strong as well.
Going forward, it would be imperative for India’s otherwise stagnant industry to start innovating to counter strategic investments by the Chinese, or else, sometime in the future, we could make for an ideal case study on digital colonisation.
This is the first article in a multi-part series on strategic investments by China’s state and private firms across the world and their economic and political significance in a post-Covid-19 world.
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