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Chinese app ban: Indian start-ups face a major hurdle

By Peerzada Abrar
July 02, 2020 14:42 IST
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According to experts, the banning of the apps has created negative sentiments and reduced the confidence among the Chinese investors to invest in India.


Illustration: Dominic Xavier/

The Chinese app-ban is expected to further create hurdles for Chinese investments in Indian unicorns, soonicorns and other firms as Sino-India tension escalates.

With 59 Chinese apps banned by India, including Bytedance's TikTok, Alibaba's UC Browser and Tencent's WeChat, as the government cited security concerns, the country is expected to increase the level of scrutiny of investments coming from China - both directly and indirectly.


According to experts and industry insiders who work on cross-border investments between the two countries, the banning of the apps has created “negative sentiments” and reduced the confidence among the Chinese investors to invest in India.

They said this will have a major impact on new investments by Chinese players in companies such as Paytm, Ola, BigBasket, Dream11, MakeMyTrip, and Swiggy, when they go for follow-up funding.

Chinese investors, such as Alibaba, Tencent, and Xiaomi, are active in the Indian start-up space and have collectively invested billions of dollars.

Interestingly some of the Indian companies backed by Chinese investors have supported the government’s move of banning the Chinese apps.

The government had also recently made changes to its FDI policy and introduced strict measures to curb opportunistic takeover due to the COVID-19 crises.

It had introduced a pre-clearance mechanism on investments from China.

“The message from India to China is getting very clear that geopolitics and business will go hand in hand and access to Indian market for Chinese companies and investors will become a challenge if we have an unfriendly relationship in our border,” said Anand Prasanna, managing partner at Iron Pillar, a venture growth investor specializing in technology investments in India.

“I think most Chinese investors will hold back on investment plans in India given this dynamics, including follow on investments.

"I will not be surprised if a few will just sell existing investments and leave. It will take a long time for things to get back to normal if it ever will,” said Prasanna.

Approximately $10 billion of capital was invested in Indian tech startups in 2019. As per Iron Pillar’s estimate, approximately 30 per cent of this capital came from investors based in China, including Hong Kong.

This is a significant increase from just a few hundred million dollars invested before 2017, according to Iron Pillar.

“This app-ban or digital strike will impact the sentiments of Chinese investors.

"There lies a slippery road ahead for (Indian unicorns), which were showing steady growth in the Indian startup market,” said Sumit Kochar, corporate commercial lawyer and transaction advisory partner at Dolce Vita Trustees.

According to foreign policy think tank Gateway House, Chinese tech investors have been successful and over the five years ending March 2020, 18 of India’s 30 unicorns are now Chinese-funded.

TikTok, the video app, had 200 million subscribers and had overtaken YouTube in India.

Alibaba, Tencent and ByteDance rival the US penetration of Facebook, Amazon and Google in India. Chinese smartphones like Oppo and Xiaomi lead the Indian market with an estimated 72 per cent share, leaving Samsung and Apple behind, according to Gateway House.

TikTok’s owner ByteDance, had also a $1 billion India-specific expansion plan.

Chinese app Club Factory which was also banned claimed to be the third-largest e-commerce platform in India.

The other banned platforms include ‘Mi Video Call and Mi Community’ of Xiaomi, which is the top smartphone vendor in the country.

“There will be a wait and watch for Indian companies seeking capital and Chinese strategists will want to wait as well,” said Madhur Singhal, managing director at management consulting firm Praxis Global Alliance.

The Confederation of All India Traders (CAIT) which represents 7 crore traders this week also sent a communication to Finance Minister Nirmala Sitharaman, IT Minister Ravi Shankar Prasad and Commerce Minister Piyush Goyal and pointed out that Chinese companies have major investments in many start-ups in India.

It said Chinese companies like Alibaba and Tencent are lead investors in many of these startups and it should be ensured that “no foul play is taking place under the garb of investments.”

Experts said China’s ‘Digital Silk Road (DSR)’ project is feared to have made a major inroad deep into the country through investments by Chinese firms in Indian startups, and also the country’s control of the cyber and digital space.

“The blocking order by the government is going to have some impact on the number of users of these Chinese apps in India in the short term,” said Salman Waris, managing partner at TechLegis Advocates and Solicitors.

“India has been one of the largest recipients of Chinese investments and hence in that sense, they have a long term strategy here,” said Waris.

Blaise Fernandes, director at Gateway House said the ‘India Digital Story’ is Covid resistant and even during these uncertain times investments from North America and the Middle East have come into the digital ecosystem of the country.

He said the privately held family funds and European sovereign funds will also be looking at India.

“India needs a well-calibrated diplomatic outreach to tap these funds. So the Indian tech and startup systems have ample opportunities to tap the overseas markets,” said Fernandes.

“A few Indian entities have also raised capital in the past 6 weeks.”

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Peerzada Abrar in Bengaluru
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