Is scepticism over Chinese investment pushing India towards a protectionist future?

Google 'delisted’ an app that millions of Indians downloaded to encourage a boycott against Chinese software, as mounting anti-China sentiment proliferates across the country.

On 3 June, the Remove China App was unavailable from the Google Play Store, as the tech giant cited that the product violated Google policy by encouraging users to remove or disable third-party applications from Android phones.  

Jaipur-based startup OneTouch AppLabs developed the app, allowing users to identify and delete applications developed in China like TikTok, which is massively popular in India.

On its download page, the app was framed in political terms: referencing Indian Prime Minister Narendra Modi’s Covid-19 address on 12 May, which focused on ‘Atm Nirbhar Bharat’ or a self-reliant India.

The developers billed the app as a tool to support that goal. 

According to analytics company Sensor Tower, the app was downloaded more than 4 million times between late May and 1 June and had a 4.9 out of 5 stars rating from nearly 180,000 reviews.

 While most of the app installations were in India, data showed it was gaining momentum in Australia.

The app prompted debate among Chinese developers who target international markets. 

Baijing, or Beluga Whale, a popular online community for China’s app exporters, mentioned that the app is “a form of market disruption” and called on Chinese developers to report it to Google. 

The Chinese tabloid, The Global Times said the app was “likely to draw punishment from China,” adding that “the software has drawn ridicule from Chinese netizens, who suggest Indians could ‘throw away’ their Chinese-branded smartphones.”

Lui Dingding, a Beijing-based analyst, doesn’t think that the present anti-Chinese surge and the “Made in India” initiative would have much of a lasting effect given India’s reliance on Chinese manufacturing.

“From a pragmatic perspective, fanning such sentiment will do no good for India’s own industrial development as it needs economic and trade ties with China,” Liu noted.

Some observers see this rising anti-China sentiment as part of a global trend and that China should be prepared for it.

“As anxiety around Chinese technological hegemony grows, it’s only a matter of time before we see what is happening in India take root in other countries,” said Dr. Yunhee Ki, a consultant with Global Risk Intelligence, speaking with TRT World.

“It’s a risk that Chinese developers will have to start factoring in now or they won’t be ready for the long-term consequences autarkic national policies would bring about.”

China’s growing digital footprint 

The Remove China App was launched on 17 May, just days after a cross-border skirmish between Indian and Chinese troops at a remote mountainous crossing near Tibet.

In the latest in a long history of border flare-ups between the neighbouring powers, it triggered a fresh round of anti-China sentiment in the country.

A boycott campaign was given a visible boost when prominent educator and innovator Sonam Wangchuk took to social media to urge Indians that it was their responsibility as citizens to “use their wallet power” and leave a negative impact on Chinese imports.

Shortly after Wangchuk’s comments were made in response to the border standoff, #BoycottMadeInChina began trending.

Actor Arshad Warsi chimed in along similar lines to his two-plus million followers on Twitter.

With bilateral tensions escalating, the two countries also have a significant economic relationship – one that has come under considerable strain as India begins to pivot towards self-reliance to wean itself from dependency on China.

Chinese smartphone manufacturers Vivo and Xiaomi were the top sellers in India during the first quarter of 2020, making up over half the market, according to research firm Canalys.

India has said it would allow Chinese telecom company Huawei to participate in some 5G trials.

But as global concerns over China’s 5G ascendancy have become more pronounced, it has surfaced in India, where 5G negotiations are considered a vital matter for national security.

“Allowing Huawei or ZTE to be a 5G equipment provider to Indian telecommunications firms will be like asking the Chinese Communist Party to run our general elections,” warned Gautam Chikermane, Vice President at the Observer Research Foundation.

Chikermane decried that China’s Belt and Road initiative (BRI), long resisted by India, was penetrating the country by stealth: “One major lapse on the part of India has been that it has allowed the creeping acquisition of India Tech by the Digital BRI,” he claimed.

Why is China targeting Indian tech? Despite having a vibrant tech sector, Indian startups have had to rely on significant overseas funding.

“India has not yet developed a robust venture capital industry that can nurture and sustain a startup ecosystem without being reliant on foreign capital,” Nandini Sarma, a fellow at the Observer Research Foundation, told TRT World.

Chinese investment is heavily capitalised in Indian tech, having financial interests in almost two-thirds of startups valued at over $1 billion. Alibaba owns Paytm and has a stake in Zomato, while Tencent is a key investor in Swiggy, Flipkart, and Ola.

 With China’s growing footprint in acquiring stakes in the Indian tech industry comes another concern: data.

China has invested large sums in many of India's top startups
China has invested large sums in many of India's top startups (TRTWorld)

 “As Chinese firms invest in online payment portals and ride-sharing services, there is a real possibility that these companies will gain access to sensitive information that could allow comprehensive profiling of millions of Indian citizens,” said Sarma.

When it comes to competing with Chinese state-run enterprises, Indian corporates are at a disadvantage. But if there is any threat to Indian companies is not from Chinese FDI, but exports.

India’s Department for Promotion of Industry and Internal Trade calculated Chinese FDI from 2000-2019 as $2.3 billion. This accounted for only 0.52 percent of all FDI inflows in the country.

China's investment in India between 2015-2019
China's investment in India between 2015-2019 (TRTWorld)

In 2019, bilateral trade accounted for $92 billion. However, India has a sizeable trade deficit with China that runs over $55 billion – a gap it has tried to bridge through investments over the years.

Protectionist anxieties  

Since China’s mishandling of the Covid-19 outbreak and with the global economy in a tailspin, many governments – and India’s in particular – have become sceptical of economic dependence on Beijing.

China’s trade practices and supply chain dominance has become more scrutinised, prompting many countries to modify their domestic policies, particularly to protect local manufacturing and technology firms.

Fearing an opportunistic Chinese takeover of distressed companies, the Indian government tightened its policy on FDI in April to require investment from any country that shares a land border with India to go through an approval process.

Some observers are less keen on an FDI gambit or any protectionist impulse at a juncture when the Indian economy is in the doldrums, given the fiscal woes brought on by the pandemic.

 “At a time when Indian corporates are reeling under a severe liquidity crunch due to rising nonperforming assets and banks are not too keen to lend, banning Chinese investments doesn’t augur well,” said Steven Raj Padakandla, Assistant Professor in Economics at IMT-Hyderabad. 

He maintains that what is pressing for a reeling Indian economy “is to refuel consumer demand by generating adequate employment” and that capital infusion into the private sector is necessary. If that’s the case, then there cannot be any “selective prohibition of foreign capital”. 

“Modi has set ambitious plans for India to use the crisis and emerge as a key player in global manufacturing and supply chains post-COVID. Such a vision requires huge capital and forward-looking ideas. And sticking to the last vestiges of protectionism will not help,” he concluded.

Any solution to address trade imbalances with China will also require India to be much more integrated with its own backyard. 

A policy brief published by Brookings India highlighted India’s limited trade connectivity with South Asia – and China’s dominance.

“Despite geographical proximity and the existence of bilateral and multilateral free trade agreements, South Asia is one of the least economically integrated regions in the world,” writes Riya Sinha and Niara Sareen.

According to the brief, intra-regional trade in South Asia is among the lowest in the world at 5.6 percent, and India’s trade with South Asian countries (Afghanistan, Bangladesh, Bhutan, Maldives, Myanmar, Nepal, Pakistan, and Sri Lanka) remained roughly between 1.7 and 3.8 percent of its global trade.

Meanwhile China has consistently increased its exports to the region from $8 billion in 2005 to $52 billion in 2018, a 546 percent growth.

There is no easy fix. The risk Chinese tech and FDI pose to Indian interests cannot be contained unless India truly grapples with a host of challenges – from domestic financing mechanisms to regional trade integration. Its ailing economy will need more investment, not less. 

At the moment, it appears the spectre of China will remain a potent reservoir for protectionist anxieties to tap into.

Source: TRT World