Digital India Made in China

 By Anindya Sengupta

As we were busy washing every bank note coming from outside, China stunned the world by announcing the launch of the first official digital currency. Five year in the making, this digital currency (still known as DCEP, short for Digital Currency Electronic Payment) is not only the China's latest attempt to upstage the US dollar as the world's premier currency but also has the potential to completely alter the global banking system.

This is just the latest example of what tremendous progress China has been making in technology in recent years. 80% of Chinese smart phone owners primarily use digital payments like Alipay or WeChat Pay. In important Chinese airports, now you have automated immigration terminals, where the machine talks to you in the language mentioned in your passport. China is building (to be completed by 2030) five mega smart city clusters (each of the size of Japan) with smart grids and 5G connectivity, where people would travel by high-speed railways or automated vehicles, healthcare would be driven by AI and cloud hospitals and smart home appliances would be controlled through IoT. This unprecedented and mass adaption of technology would of course provide a great boost to Chinese productivity.

For those of my friends busy deleting Chinese apps from their phones, it is important to see this difference. It is easy to raise slogans but difficult to implement transformational projects in a country of India's size and complexity. Of course, you cannot live in the smart world by boycotting China, nobody can – as on Feb 9, 2020, China accounted for 81% of total global tech assembly and 64% of components (Morgan Stanley Research). Xiaomi is now the largest mobile handset company in India (Chinese handsets have more than 70% of market share in India) and Huawei the largest telecom gear supplier.

Remember, we were raising slogans for boycott of Chinese crackers and such things not long ago? That of course did not make any difference to China and Indian manufacturing still lags far behind. But in the last five years, Chinese capital has taken a complete hold over the digital future of India.

Chinese tech investors have invested US$ 4 billion (around $1.4 billion of it has come in the last one year) in Indian start-ups in the last five years (till March 2020). Out of the 30 Indian Unicorns, 18 have Chinese investment (CB Insights). Around two dozen large Chinese tech companies/investors have invested in 92 large Indian start-ups.

·       Largest tech investors in Indian market are Alibaba, Tencent, Shunwei Capital (Xiaomi) and ByteDance.

·       With large investment in Paytm, BigBasket, Snapdeal, Zomato, Dailyhunt, Rapido etc, Alibaba is the largest investor in e-commerce, fintech and entertainment space.

·       Tencent is a major investor in a range of edutech, gaming, logistics, social media and fintech start-ups like Byjus, Flipkart, Hike, Ola, Dream11, Ganaa, Swiggy etc.

·       Shunwei Capital is a major investor in City Mall, Hungama, Rapido, Sharechat, ZestMoney etc.

·       Chinese apps have around 50% share in the most downloaded apps worldwide (both in Google Play store and in ios). ByteDance app TikTok with 20 crore subscribers has even left YouTube behind.

·       Alibaba’s UC browser has around 20% share of the Indian browser market. Tencent has invested in MX Player, an Indian OTT platform.

·       The next sector for the Chinese companies is electric mobility (they have so far invested 57.5 crore dollars in this sector). BYD is planning to bring its K9 e-buses to India and Volvo and MG Hector are already present in Indian market.

With these details, a recent Gateway House (Indian Council on Global relations) Report concluded that India has now become part of the Chinese virtual Belt and Road initiative (https://www.gatewayhouse.in/chinas-tech-depth/).

Start-ups, mobile applications, browsers, big data, fintech, e-commerce, social media, online entertainment etc are part of the new economy, which will determine our post-Covid future.

The root of this problem is that Indian banking and finance sector is broken and cannot finance the start-ups, which incur heavy losses in the beginning. For many years, Amazon lost millions of dollars. Two Indian examples quoted in the Gateway House – both Flipkart and Paytm lost more than Rs 3500 crore each in FY19. Indian VCs, mostly techpreneurs themselves or family offices of rich Indians cannot alone bear such losses. Therefore, every big Indian start-up is funded by the Chinese funds or Japan’s Softbank (Vision Fund) or Sequoia (USA) or Naspers (South Africa).

This puts India in a very difficult situation. Compared to Pakistan, Sri Lanka, Myanmar or Bangladesh, Chinese overall FDI is much less in India but by investing heavily in start-ups, China is trying to dominate digital India’s future. Chinese grip over India's new economy does pose some questions about data, platform security etc.

But if these Chinese funding is turned off then it would spell disaster for the Indian start-ups. After the hastily announced changes in FEMA regulations on April 22, 2020 an Economic Times report said that the fresh Chinese investment in India is now put on hold and this Chinese capital may be diverted to Indonesia or Philippines (https://economictimes.indiatimes.com/small-biz/startups/newsbuzz/wary-of-fdi-rules-chinese-vcs-put-new-funding-on-hold/articleshow/75707432.cms?from=mdr).

Clearly, it is going to require a huge amount of finance, technological capacity building, smart policy-making and above all a clear vision to make digital India self-reliant and future ready.

Meanwhile, when we cannot live without China, we must meaningfully engage with Beijing - an economically engaged China is a much better bet than a strategically aggressive China.