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India’s curb on Chinese investment will leave ‘void’ in start-up scene, experts say
- Out of India’s 30 unicorns, 18 are funded either by Chinese technology companies or venture capital funds
- The stakes of Chinese firms like Alibaba and Tencent in some of India’s most lucrative start-ups may be threatened because of new investment restrictions
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India’s recent move to curb foreign direct investment (FDI) from countries including China may stymie the expansion of Chinese technology giants in the country, leaving start-ups in the world’s second most populous nation scrambling for funding and hi-tech know-how, experts say.
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Last month, India implemented a new policy barring investment without official clearance from any bordering country – including China, Myanmar, Bhutan, Nepal, Pakistan and Bangladesh – in what is widely seen as a move to stave off takeovers by Chinese firms amid the economic fallout caused by the coronavirus outbreak. The government did not mention China in its new policy statement, but said the changes were meant to curb opportunistic takeovers and acquisitions.
China has called India’s new rules “discriminatory” and said they violate the World Trade Organisation’s principles of free and fair trade. Of India’s 30 unicorns, or private companies valued at US$1 billion or above, 18 have funding from Chinese sources – whether big Chinese technology companies or venture capital funds, according to research by Mumbai-based think tank Gateway House.
As growth slows in their home market, Chinese companies and investors have been exploring opportunities in other markets including India, which is the world’s fifth-largest economy. As of December 2019, China’s cumulative investment in India exceeded US$8 billion, far more than the total investments of India’s other border-sharing countries, according to a statement by the Chinese embassy in New Delhi last month.
India is one of the latest countries to join in a global backlash against Chinese capital, which has seen countries such as the US, Germany, France and Britain block high-profile Chinese acquisitions in recent years.
Due to the new restrictions, Chinese companies whose expansion strategies involve investing in India will find their activities “rather restrained going forward”, said Liuqing Yu, an analyst at The Economist Intelligence Unit (EIU).
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