How China’s crackdown could benefit Indian tech

Synopsis: China’s move to bring its tech sector under political control has created opportunities for India to attract greater foreign investment inflows.

Introduction

Since late last year, China has been tightening the state’s grip on the Chinese private sector, which contributes over 60% to the gross domestic product (GDP) of the world’s second-largest economy.

Xi’s retaliation against the “disorderly expansion of capital” has steadily expanded since the Communist Party of China (CPC) silenced Alibaba founder Jack Ma last year.

As a consequence, more Chinese firms have lost over $1 trillion in valuations within months. Tencent alone lost $388 billion in market value, as Chinese firms have disappeared from the world’s top 10 stocks.

Owing to these recent crackdowns, foreigners are now cautious of investing in Chinese companies.

Why China is tightening its grip on the Chinese private sector?

Chinese Capitalism: To ensure that compared to the West, “capital cannot dominate the country” and it “must not influence politics” in China.

The economic and political rise of Chinese tech superpowers: The crackdown on digital economy firms now appears to be a case of China’s tech titans becoming too powerful. Such as e-commerce giant Alibaba and software giant Tencent.

China’s policy of making education inclusive: Beijing has been especially hard on China’s $100 billion edtech sector. The CPC is determined to make education more affordable and inclusive. Online tutoring firms are no longer allowed to make a profit, list overseas or receive foreign investments.

Issue of Politics: Xi wants to continue as the party supremo for another term and is clearing the road to power off his critics.

Why is India expected to Gain?

Firstly, India is relatively more stable and has a large alternative consumer base.

Secondly, India is also home to a fast-growing digital economy, with an estimated 750 million Indians already online, which includes about 360 million online learners.

Thirdly, The accelerated digitization of the Indian economy post-covid.

Fourthly, The ongoing decoupling of Sino-US ties.

Fifthly, India’s edtech sector has been booming recently.

What does the future hold?

Insiders predict that there will be greater investment opportunities for India over the coming years but emphasize that it’s too soon to make a definitive decision.

Whereas some experts are uncertain whether that represents a direct opportunity for India. They opine that, Opportunities emerge from our own innate strengths and don’t need a fillip from China.

While others have pointed out that China effect will take a year or two to become evident. American funds will invest less in China and more in India, while also diversifying to Southeast Asia and the Middle East.

What has been the impact on India’s Startup market?

Increasing Global investments: At least 104 of the 168 global investors in Indian fintechs this year were from the US and 40 were from Asia. In the past three years, US investor participation in Indian fintech startups went up by nearly 60%, Asian investor participation rose by 53%.

Increasing Investments in Indian startups: India in July 2021 surpassed China in monthly venture capital deals for the first time since 2013. Over two dozen new Indian unicorns were created this year.

Increasing Investments in India’s edtech sector: In edtech, Indian startups clocked over $2 billion in 2020 compared to $553 million in 2019. For instance, since last year, Byju’s has raised more than any other edtech firm in India. Following their path are firms such as Unacademy Group, an edtech firm that recently raised $440 million.

Source: This post is based on the article “HOW CHINA’S CRACKDOWN COULD BENEFIT INDIAN TECH” published in Live Mint on 27th Sep 2021.