For more than a decade, China has limited how foreign tech firms that operate inside its borders do business. The world’s largest internet market has used its Great Firewall to block Facebook, Twitter, Google and other services in the name of preserving its cyber sovereignty.
The walled-garden approach has helped homegrown giants like Tencent and Alibaba Group win the local market, while giving the Chinese government a better hold on what gets communicated on these platforms. China has even suggested that other nations deploy similar measures.
Be careful what you ask for: Last week, dozens of Chinese firms got a front-seat view to the challenges their global counterparts face in their territory. With a press release, India declared that the world’s second-largest internet market was shutting the door to dozens of Chinese firms for an indefinite period.
India said it would ban 59 apps and services, including ByteDance’s TikTok, Alibaba Group’s UC Browser and UC News, and Tencent’s WeChat over cybersecurity concerns.
New Delhi is open to meeting these firms and hear their defenses, but for now, local telecom operators and other internet service providers have been ordered to block access to these services. Google and Apple have already complied with India’s order and delisted the apps from their app stores.
India’s order is already shifting the market in favor of local firms, several of which have rushed to cash in on the app ban. A crop of recently launched short-form video sharing services have amassed tens of millions of users just this week.
But depending on how long the ban remains in place, the move could also derail a big funding source for thousands of Indian startups. The vast majority of India’s unicorns count Chinese VCs as some of their biggest and longest-term backers. New Delhi’s order could also change how American giants, many of which are already bullish on India, review the market moving forward.
Today, we will explore various ways India and China’s situation could play out and impact various stakeholders. But first, some background on how tension escalated between the two nuclear-armed nations.
An anti-China sentiment has been gaining pace in India for the past three months after the Narendra Modi government recommended the nation’s 1.3 billion citizens buy items from local companies instead of those sold by foreign firms.
In a speech in May, Modi referenced “self-reliance” more than a dozen times as a proposed nationwide measure to fight the disruptions caused by COVID-19. “We must make the local the mantra of our life,” he said in the speech.
That recommendation was also positioned to offset India’s slowing economy, which has hit its lowest in decades in recent months. Several celebrities joined the bandwagom, posting videos on social media that showed they were boycotting Chinese firms that have expanded their presence in the nation.
In the third week of June, things dramatically escalated after at least 20 Indian soldiers were killed in a clash with the Chinese army in a disputed Himalayan border area. This was the first deadly clash between the two nations — that fought a war in 1962 and had another series of skirmishes in 1967 — in more than 40 years.
In the 1990s, the two countries agreed on a set of procedures to reduce further disputes. One of which is that neither of the forces will carry or fire bullets in the disputed region. Local media reported that neither of the forces used bullets at the disputed region, called the Line of Actual Control (LAC) in the Galwan Valley, in the clash last month, but the Chinese army may have beaten Indian soldiers with rocks and clubs.
In its app ban order this week, India avoided any mention of China, but all the services it has banned were developed by Chinese firms, so the move has been widely seen as a retaliation.
The backdrop of the decision is crucial as it would likely determine how long the ban would last. With India and China yet to sit across the table to resolve the matter, it is likely that the ban might last for a few months — at the very least.
How the ban impacts India
TikTok disabled its service in India for existing users ahead of Google and Apple delisting every app that the Indian government has banned in the nation. Since then scores of startups that have developed services similar to that of TikTok have reported impressive growth.
Chingari has added more than 10 million users since last week, it said. Roposo, a startup that adtech giant InMobi acquired in late 2018, said it has added more than 22 million users during the same period. Mitron, a similar app, said it has seen millions of new downloads and closed its seed financing round.
Twitter-backed Sharechat, an Indian social network that offers its service in several local languages, said it has more than doubled its daily active users to 25 million.
Several VC firms in India are scouting for similar startups. Many have publicly tweeted, urging startup founders to get in touch.
If you are building apps that replace these apps in India. You can mail me at prayank@accel.com … happy to chat! #startups #MadeInIndia https://t.co/m7zMJXfEr7
— Prayank Swaroop (@prayanks) June 30, 2020
But while these firms may attract tens of millions of users in the immediate aftermath of the ban, they will unlikely be able to win even a fraction of TikTok’s users, said an executive who works at a venture firm and who requested anonymity sharing an opinion that may upset others in the local ecosystem.
He alleged that part of the reason why services such as TikTok and UC Browser have gained traction in India is because of the “sleazy” and “shadow porn” content that circulates on their platforms.
“Chinese firms did not care much. They have a small product team in India and much of the content is algorithmically driven. But Indian firms will not be able replicate that because of the government oversight, and moral sensitiveness of VCs and the ecosystem,” he said.
Despite the growth, the app ban also means that tens of thousands of content creators of TikTok, Helo, Bigo Live and others that have made a livelihood on these platforms will take a severe financial hit.
In recent years, hundreds of creators in India have amassed more than a million followers on TikTok. Just as equally impressive is who these creators are: Beauticians, dieticians, high school students from small towns in India, and elderly who speak languages that very few people understand.
People who have been massively underrepresented in mainstream Bollywood movies and speeches of politicians found a platform and gained a following that challenged the mainstream media’s reach. Many of these creators made hundreds of dollars on TikTok through advertisers and the Chinese giant itself each month.
Sajith Pai, director at venture firm Blume, told TechCrunch that YouTube and Instagram would be able to court the top influencers from TikTok and other platforms. “But beyond a point, they won’t be bandying out much incentive to other creators.”
For many startups, the growing anti-China sentiment is not good news at all. Paytm, India’s most valued startup; Udaan, a business-to-business marketplace; and Zomato and Swiggy, the nation’s top delivery startups, have one or several major Chinese investors on their cap tables.
Alibaba Group, for instance, owns more than a 40% stake in Paytm. Vijay Shekhar Sharma, co-founder and chief executive of Paytm, downplayed the subject and said of India’s move: “Bold step in the national interest. A step toward atmanirbhar (self- reliant) app ecosystem. Time for the best Indian entrepreneurs to come forward and build the best by Indians, for Indians!”
In April this year, New Delhi amended its foreign direct investment policy to require all neighboring nations with which it shares a boundary to seek approval for their future deals in the country. The move was seen as a shot at China.
Previously, only Pakistan and Bangladesh were subjected to this requirement. The nation’s Department of Promotion of Industry and Internal Trade said it was taking this measure to “curb the opportunistic takeover” of Indian firms that are grappling with challenges due to the coronavirus crises.
Reuters reported on Monday that about 50 applications from Chinese investors are currently under review. Zomato, which announced it had raised $150 million from Ant Financial in January, has yet to receive $100 million of that capital, Info Edge, one of its investors, said in an earnings call last month.
How it impacts American giants
For Google and Facebook, the ban on 59 apps could help them win millions of users in India. Though, any person — even in a smaller Indian city — who was on TikTok likely also uses YouTube and Facebook, and uses an Android smartphone for web access. It comes as little surprise then why Facebook has already begun testing Instagram Reels in India.
New Delhi’s move should be a cause for concern for them, an industry executive who did not wish to be named, said. As we have previously written about, Narendra Modi’s nationalist government has taken several “protectionist” measures in recent years, many of which were directed at American firms.
Some of the currently proposed policy changes are currently being hammered out by the government without any consultation with other politicians and stakeholders, Shashi Tharoor, one of India’s most influential opposition politicians, told TechCrunch in a recent interview.
The latest episode with China could be a precursor to what the Modi government may have in store for other technology giants in the nation.
How India’s move impacts China
New Delhi’s decision has already cost TikTok and Alibaba Group’s UC Browser to lose millions, according to industry estimates. If the ban persists, that loss would only balloon.
But a venture capitalist in China, who did not wish to be named in a piece with any political context, said that VCs are not necessarily missing out on much. Even as Chinese investors have made major bets on Indian startups, most of them have yet to see any significant return. So the ban is unlikely to impact them in the immediate future, he said.
Regardless, other Chinese firms that have a big presence in India have grown cautious in recent weeks to avoid any backlash. Xiaomi, which has been the top smartphone vendor in India for more than two years, has hidden its company banner outside retail stores across several cities in the country and put on a new makeshift banner that says “Made in India” instead.
Zhao Lijian, a spokesperson for the Chinese Foreign Ministry, told reporters in a briefing last week, however, that China was concerned with India’s move and that India “has a responsibility to uphold the legal rights of international investors including those from China.”
China has officially not made any more comments on the subject. But in an opinion piece published on Chinese state-run outlet Global Times this week, the country offered a more frank response.
“By alienating and antagonizing China, Indian leaders could put their country’s economic future in serious peril. As a matter of fact, China has leverage or options in its hand to inflict immediate economic pain on India, because China is far less reliant on India’s market than India is on China’s,” reads the piece.
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