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https://www.india-briefing.com/news/chinese-investment-india-digital-market-dynamics-14383.html/
Chinese Investment into India Confirms Key Market Dynamics
June 13, 2018 Posted by India Briefing Written by Bradley Dunseith and Melissa Cyrill
Chinese foreign investments (FDI) into India have surged in recent years, heavily targeting startups and technology platforms.
In a break from its usual FDI forays in other Asian markets, China’s investment momentum in India showcases a familiarity with key market trends in the Indian economy.
While China predominantly focuses on infrastructure, extractive, and manufacturingindustries in the rest of the world; in India, Chinese investors are intent on strengthening its digital ecosystem and hyperlocal startups.
What has sparked China’s recent interest in India after over a decade of neglect?
Chinese pattern of investment in India
From 2014 to 2015, mainland China’s FDI into India grew either by 200 percent or 600 percent – depending on which of the two countries reported it.
India’s Department of Industrial Policy and Promotion (DIPP) claims Chinese annual FDI rose from US$123.99 million in 2014 to US$494.75 million in 2015; Global Times, China’s state owned media outlet, said the figure rose from roughly US$145 million in 2014 to US$870 million in 2015. In 2016, between June and August alone, Chinese firms purportedly invested US$2.3 billion into India.
To put this into context, FDI inflow from mainland China totaled US$1.2 billion between April 2000 and September 2015.
Compare Chinese investments into Indian startups with China’s investment history in India. A single investment now overshadows an entire sector.
Since 2015, Chinese firms have pumped in hundreds of millions of dollars into Indian digital startups. These figures – not yet reflected in official Indian records – significantly increase the volume of Chinese FDI going into India. It also redirects Chinese investment into a new market.
Traditionally, China’s Indian investments focused on the automobile industry, and primarily targeted old industry hubs like the states of Maharashtra and Gujarat – Prime Minister Modi’s home state.
But, in the last two years, Chinese firms have diversified their Indian investments into new industries while venturing into other states such as Haryana, Rajasthan, Tamil Nadu, and Andhra Pradesh – either directly or through global mergers and acquisitions.
Official records have not been able to keep up with China’s recent increase in investment. Likewise, Chinese firms do not always publicize their investments.
In search of the next unicorn
Besides Chinese corporations, venture capital (VC) funds from the country are keenly scouting Indian startups in search of the next big internet investment, taking advantage of the investor vacuum in the sector in the last two years.
VC investments from China amounted to US$34 million in 2017 across nine deals and US$30 million across four deals in the first six months of 2018.
Currently, multiple Chinese VC funds, including Qiming Ventures, Morningside Ventures, CDH Investments, 01VC, and the Orchid Asia Group, are considering buying stakes in Indian startups, ranging from those innovating financial and education technology to e-commerce, content, and online classifieds platforms.
These investors are primarily looking at making series B and C investments, and not providing seed funding, meaning propsect startups have proven the workability of their business model in their respective industry verticals.
Adapting the ‘China plus one’ model
Chinese investments into India’s startups and digital platforms represents a new take on the tried and tested China plus one model – shifting or expanding operations out of China to benefit from cheaper labor, new markets, and less domestic vulnerability.
In three major ways, however, Chinese companies are expanding on the China plus one model to enhance their access to Indian markets, and deepen their presence in the burgeoning digital economy.
- Importing best practices to a similar market
China and India are culturally and politically very different, however, their markets have important similarities.
Both countries, for example, have massive populations with many first time mobile phone users. China has already utilized its considerable experience providing smartphones to its own domestic market to win over India’s smartphone buyers. Indeed, Chinese brands now account for 51 percent of smartphone sales in India.
Similarly, the Chinese have been at the forefront of innovating digital payments systems, a sector that is rapidly expanding in India and which enjoys government support.
Using their domestic experience, Chinese companies can provide Indian digital startups with best practices for meeting the needs of a large-scale, technologically illiterate population.
- Bolstering India’s digital economy
India’s digital ecosystem is in its early stages; Chinese investors have great opportunities to become big players in this growing market. Small and medium enterprises (SMEs) in China will especially find more growth potential in India than in the Chinese digital sector, already controlled by large companies.
By investing in existing digital startups, Chinese companies minimize the risk and operational costs of establishing an independent, competing presence. Furthermore, it is in China’s interests to see Indian digital startups flourish.
The rise of American e-giants like Amazon and Uber reduce the space for Chinese firms to achieve international growth, sometime even threatening their stronghold at home. During the market access war between Didi and Uber in China, for instance, Didi invested an unpublicized amount (estimated at US$10 million) into Ola – an Indian ride-sharing startup currently engaged in its own battle for the Indian market with Uber.
Promoting competition in India may even save Chinese digital firms in the long term as they confront international upstarts.
- Integrating Chinese knowledge with Indian resources
India has a robust IT industry that operates at cheaper costs than in China.
By investing into promising startups in India, China is in a unique position to not only help India’s digital sector but to shape it.
Chinese investors will then be able to utilize developments and innovations from India back into China’s own digital ecosystem, and vice versa.
For example, for many of the apps being developed by Indian startups, a Chinese equivalent already exists. Not only will such knowledge allow Chinese businesses to shape this rapidly growing industry, Chinese companies can also integrate innovations from India into their home operations.
China to become a big player in India
Despite the sudden upward trajectory, China’s FDI into India still pales in comparison to its investments throughout the rest of South Asia.
Comparatively, China is Pakistan’s biggest foreign investor and has recently pledged a staggering US$55 billion to develop the China-Pakistan Economic Corridor. Bangladesh and Sri Lanka have also received significant investments from China.
This could, however, change in the near to mid term.
In May, China’s leading state-run bank, The Industrial and Commercial Bank of China, publicized the launch of its first India-dedicated publicly offered investment fund.
Named the Industrial and Commercial Bank Credit Suisse India Market Fund, it will track the following sectors for investments – financial industry, information technology, alternative consumption, energy, essential consumption, raw materials, and healthcare, among others.
Coming barely a fortnight after the informal summit in Wuhan between Prime Minister Modi and President Xi, the fund showcased China’s interest and optimism in investing in the Indian economy over the long term.
In effect, the increase in Chinese investments into Indian startups reflects how Chinese investors now perceive opportunities in India.
By injecting millions of dollars into promising technology platforms and local solutions-driven startups, Chinese investors appear to be in for the long haul in India. Simultaneously, they are strengthening India’s domestic players at a time when China is competing with Western companies in almost every sector.
Following the success of recent investments, China could soon become one of India’s top foreign investors.
Editor’s Note: This article was originally published on June 7, 2017 and has been updated to incorporate new developments.
================
@Cybernetics @rott @Chinese-Dragon @dy1022 @Dungeness
Chinese Investment into India Confirms Key Market Dynamics
June 13, 2018 Posted by India Briefing Written by Bradley Dunseith and Melissa Cyrill
Chinese foreign investments (FDI) into India have surged in recent years, heavily targeting startups and technology platforms.
In a break from its usual FDI forays in other Asian markets, China’s investment momentum in India showcases a familiarity with key market trends in the Indian economy.
While China predominantly focuses on infrastructure, extractive, and manufacturingindustries in the rest of the world; in India, Chinese investors are intent on strengthening its digital ecosystem and hyperlocal startups.
What has sparked China’s recent interest in India after over a decade of neglect?
Chinese pattern of investment in India
From 2014 to 2015, mainland China’s FDI into India grew either by 200 percent or 600 percent – depending on which of the two countries reported it.
India’s Department of Industrial Policy and Promotion (DIPP) claims Chinese annual FDI rose from US$123.99 million in 2014 to US$494.75 million in 2015; Global Times, China’s state owned media outlet, said the figure rose from roughly US$145 million in 2014 to US$870 million in 2015. In 2016, between June and August alone, Chinese firms purportedly invested US$2.3 billion into India.
To put this into context, FDI inflow from mainland China totaled US$1.2 billion between April 2000 and September 2015.
Compare Chinese investments into Indian startups with China’s investment history in India. A single investment now overshadows an entire sector.
Since 2015, Chinese firms have pumped in hundreds of millions of dollars into Indian digital startups. These figures – not yet reflected in official Indian records – significantly increase the volume of Chinese FDI going into India. It also redirects Chinese investment into a new market.
Traditionally, China’s Indian investments focused on the automobile industry, and primarily targeted old industry hubs like the states of Maharashtra and Gujarat – Prime Minister Modi’s home state.
But, in the last two years, Chinese firms have diversified their Indian investments into new industries while venturing into other states such as Haryana, Rajasthan, Tamil Nadu, and Andhra Pradesh – either directly or through global mergers and acquisitions.
Official records have not been able to keep up with China’s recent increase in investment. Likewise, Chinese firms do not always publicize their investments.
In search of the next unicorn
Besides Chinese corporations, venture capital (VC) funds from the country are keenly scouting Indian startups in search of the next big internet investment, taking advantage of the investor vacuum in the sector in the last two years.
VC investments from China amounted to US$34 million in 2017 across nine deals and US$30 million across four deals in the first six months of 2018.
Currently, multiple Chinese VC funds, including Qiming Ventures, Morningside Ventures, CDH Investments, 01VC, and the Orchid Asia Group, are considering buying stakes in Indian startups, ranging from those innovating financial and education technology to e-commerce, content, and online classifieds platforms.
These investors are primarily looking at making series B and C investments, and not providing seed funding, meaning propsect startups have proven the workability of their business model in their respective industry verticals.
Adapting the ‘China plus one’ model
Chinese investments into India’s startups and digital platforms represents a new take on the tried and tested China plus one model – shifting or expanding operations out of China to benefit from cheaper labor, new markets, and less domestic vulnerability.
In three major ways, however, Chinese companies are expanding on the China plus one model to enhance their access to Indian markets, and deepen their presence in the burgeoning digital economy.
- Importing best practices to a similar market
China and India are culturally and politically very different, however, their markets have important similarities.
Both countries, for example, have massive populations with many first time mobile phone users. China has already utilized its considerable experience providing smartphones to its own domestic market to win over India’s smartphone buyers. Indeed, Chinese brands now account for 51 percent of smartphone sales in India.
Similarly, the Chinese have been at the forefront of innovating digital payments systems, a sector that is rapidly expanding in India and which enjoys government support.
Using their domestic experience, Chinese companies can provide Indian digital startups with best practices for meeting the needs of a large-scale, technologically illiterate population.
- Bolstering India’s digital economy
India’s digital ecosystem is in its early stages; Chinese investors have great opportunities to become big players in this growing market. Small and medium enterprises (SMEs) in China will especially find more growth potential in India than in the Chinese digital sector, already controlled by large companies.
By investing in existing digital startups, Chinese companies minimize the risk and operational costs of establishing an independent, competing presence. Furthermore, it is in China’s interests to see Indian digital startups flourish.
The rise of American e-giants like Amazon and Uber reduce the space for Chinese firms to achieve international growth, sometime even threatening their stronghold at home. During the market access war between Didi and Uber in China, for instance, Didi invested an unpublicized amount (estimated at US$10 million) into Ola – an Indian ride-sharing startup currently engaged in its own battle for the Indian market with Uber.
Promoting competition in India may even save Chinese digital firms in the long term as they confront international upstarts.
- Integrating Chinese knowledge with Indian resources
India has a robust IT industry that operates at cheaper costs than in China.
By investing into promising startups in India, China is in a unique position to not only help India’s digital sector but to shape it.
Chinese investors will then be able to utilize developments and innovations from India back into China’s own digital ecosystem, and vice versa.
For example, for many of the apps being developed by Indian startups, a Chinese equivalent already exists. Not only will such knowledge allow Chinese businesses to shape this rapidly growing industry, Chinese companies can also integrate innovations from India into their home operations.
China to become a big player in India
Despite the sudden upward trajectory, China’s FDI into India still pales in comparison to its investments throughout the rest of South Asia.
Comparatively, China is Pakistan’s biggest foreign investor and has recently pledged a staggering US$55 billion to develop the China-Pakistan Economic Corridor. Bangladesh and Sri Lanka have also received significant investments from China.
This could, however, change in the near to mid term.
In May, China’s leading state-run bank, The Industrial and Commercial Bank of China, publicized the launch of its first India-dedicated publicly offered investment fund.
Named the Industrial and Commercial Bank Credit Suisse India Market Fund, it will track the following sectors for investments – financial industry, information technology, alternative consumption, energy, essential consumption, raw materials, and healthcare, among others.
Coming barely a fortnight after the informal summit in Wuhan between Prime Minister Modi and President Xi, the fund showcased China’s interest and optimism in investing in the Indian economy over the long term.
In effect, the increase in Chinese investments into Indian startups reflects how Chinese investors now perceive opportunities in India.
By injecting millions of dollars into promising technology platforms and local solutions-driven startups, Chinese investors appear to be in for the long haul in India. Simultaneously, they are strengthening India’s domestic players at a time when China is competing with Western companies in almost every sector.
Following the success of recent investments, China could soon become one of India’s top foreign investors.
Editor’s Note: This article was originally published on June 7, 2017 and has been updated to incorporate new developments.
================
@Cybernetics @rott @Chinese-Dragon @dy1022 @Dungeness
