A sign advertising the mobile-phone payment system Paytm at a roadside stall in Mumbai. Photo: AFP

The escalation of military tensions between India and China has put the spotlight on Chinese firms’ investments in India. With anti-China sentiment in the country growing, the government may step up scrutiny of such investments.

In April, before the latest standoff between the two nuclear-armed powers, the Indian government changed foreign direct investment norms to curb opportunistic takeovers due to the Covid-19 crisis and introduced a pre-clearance mechanism on investments from China.

Chinese investors such as Alibaba, Tencent, Shunwei Capital and Xiaomi have collectively invested billions of dollars in the Indian startup space. Indian companies such as Paytm, Ola, Flipkart, Bigbasket, Byju’s, Dream11, MakeMyTrip and Swiggy have been some of the beneficiaries of Chinese funding.

Alibaba Group’s fintech arm Ant Financial has invested close to US$2.7 billion in India across seven companies, including Paytm and Snapdeal. The company said in November last year that it was trying to raise a billion dollars for startups in India and Southeast Asia.

Tencent has backed unicorns like Flipkart, Swiggy and Ola. It has close to $2 billion of exposure to India across around 15 startups. It has also invested in startups like PolicyBazaar and Udaan.

Shunwei Capital has invested $129 million across 17 companies, including Zomato, social commerce startup Meesho and messaging app Sharechat.

Xiaomi has been an active investor in the Indian startup ecosystem and has pumped $61 million into eight companies.

Indian startups looking for follow-up funding may have to rework their strategies. They may have to look elsewhere as Chinese investors are expected to face greater governmental scrutiny. This may hamper their expansion plans and cost them time and money.

They are already reeling under the impact of the Covid-19 pandemic, with companies such as Oyo, Zomato and Swiggy laying off or furloughing thousands of employees. Their revenues have dried up due to the two-month lockdown imposed by the Indian government to stop the spread of the virus.

Another sphere where the Chinese companies are dominant is the Indian smartphone market. According to Counterpoint Research, Xiaomi and Vivo lead the market and enjoy a collective market share of 47%. Chinese firms occupy five of the top six positions (South Korea’s Samsung is the third-best-selling smartphone brand).

Anti-China sentiment has been growing in India since relations between the two nuclear-armed neighbors became tense. There have been calls to uninstall the popluar short video app TikTok, and an Indian outfit even floated Remove China Apps, which provides a list of Chinese apps. This anti-China app gained instant popularity in India and has been downloaded five million times since late May.

Google Play Store recently pulled Remove China Apps under its Deceptive Behavior Policy. An app cannot encourage or incentivize users to remove or disable third-party apps, according to the tech giant’s policy.

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