Can We Really Boycott China?

The call to boycott Chinese goods and technology.

There have been many debates on what India has been planning against China’s actions. In view of the US President Trump accusing China of covering up the facts and figures over coronavirus pandemic which resulted in delayed action against the virus by many countries, the chorus of boycott China is growing by the day. There are a lot of messages being shared on WhatsApp groups about people boycotting Chinese products. Chinese websites like Tik-Tok are also on the radar. The emotional backlash is fueled by the belief that China is the origin of ‘Wuhan virus’. Trump called it “Chinese virus” though it’s not clearly established if it’s a man-made virus.

Action Begins

On April 18, 2020, the government amended the FDI policy to ensure that Chinese Investors cannot invest without Govt approvals from now onwards. This has happened after Chinese Bank invested in HDFC very recently.

The new amendments are as under:

  1. As per the newly revised policy

a) An entity of any country, with whom India shares the land border or

b) Where the beneficial owner of investment into India is situated in or is a citizen of any such country [Chinese investor and investment coming from saying Hong-Kong or Singapore (both are examples)],

Now post this amendment, these people can invest only when the government of India permits.

  1. Though China is not explicitly mentioned in the FDI change release, the feeling it generates is that the amendment in the rule is to stop China from buying large stakes in Indian companies, either directly or through friendly nations (Singapore/Hong Kong) route which is generally used.
  2. There has been lots of anger against China. Last week, Margrethe Vestager, E-VP of European Commission, told Financial Times in an interview that European countries should buy stakes in companies to stave off the threat of Chinese takeovers. This is one of the recent news where the anger against China is visible.
  3. These restrictions were already in existence for investments coming from Pakistan and Bangladesh. Now the change is – it will now cover entities where Chinese citizens have “beneficial ownership” to make sure that the restrictions are not by-passed by diverting these via their friendly countries like Hong Kong, Singapore or other countries. There are many investments being done by the above routes also.
  4. So far, most FDI flows into India are in the automatic route, which means no first permission is required and these companies only just inform authorities after the investment is made (in the case of HDFC investment also). The latest move is a significant change and is showing an increased worry within the government that China is seeking to acquire Indian companies by exploiting India’s and the financial vulnerability of these companies post-Corona pandemic.

Is it easy to Stop China investments in India?

Some real facts about Chinese Investments in India in today’s period:

  • China, without creating any noise, has created a significant place for itself in India in the last five years and majorly in the technology domain. Though India has not signed on their Belt and Road Initiative (BRI) also referred to as the New Silk Road, China has entered the Indian market through an easy way of VC-venture investments in startups and penetrated the online ecosystem with its popular smartphones (MI and Oppo to name a few) and their applications (apps). Since their costs are low and heavily advertised, most of the Indians are using Chinese phones only.
  • Chinese technology investors have put an estimated $4 billion into Indian startups in the period 2015-2020. This is a significant amount in the technology area. Such is their success that over the five years ending March 2020, about 18 of India’s 30 unicorns are now Chinese-funded.
  • TikTok, the video app, has approx 200 million subscribers and has 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 (known as MI) lead the Indian market with an estimated approx 72% share, leaving Samsung and Apple behind. Their low costs and good technology is the most important reason.

This is not a one year or two years of investment plans. It’s a planned entry for long term benefits, and there are three reasons for China’s tech depth in India.

Reason 1 – Gap of Tech Investors

There are no major big Indian venture investors for Indian startups. China has taken early advantage of this gap. Alibaba’s 2015 investment in 40% of Paytm, a digital payments platform, paid off barely a year later when in November 2016, the government of India demonetised its large currency notes and simultaneously promoted a move to a cashless economy. Paytm benefitted from Alibaba’s superior fintech experience, which is applied to India seamlessly, making it a dominant player.

Reason 2 – Provision for startup losses/confidence measures

China provides the patient capital needed to support the Indian startups, which, like any other, are loss-making. The trade-off for market share is worthwhile. This boosts the investor to invest in startups as the success rate may not be high in them initially, so very few investors are ready to put in funds.

Reason 3 – Strategic importance and Long-term planning

For China, the huge Indian market has both retail and strategic value. Therefore, companies like Alibaba and Tencent have different considerations and horizons for their investments. In contrast, Western venture money is mostly through funds like Sequoia and SoftBank.

China has seen another early opportunity in India – the potential shift to electric mobility, where China has expertise. India is the world’s fifth-largest auto market; the sector is the country’s most robust and globalised export, and it is a bellwether for the economy (bellwether is an individual who either leads or indicates trends; a trendsetter). China’s BYD has been pushing its electric buses in India, with limited success. In traditional autos, which is 99% of the market, China is using the recognisable, but distressed, global auto brands like Volvo and MG, which it acquired to enter the Indian market.

So far, Chinese automakers have invested $575 million in India. The competition in India is fierce, and it’s with Indian and Asian automakers like Suzuki, Hyundai and Toyota, even as US automakers withdraw.

Who are the Chinese Investors in India?

Chinese investors in Indian startups can be divided into two categories:

  1. Dedicated VC funds such as CDH Investments, Hillhouse Capital, SAIF Partners and Ward Ferry, mostly based in Hong Kong. They are akin to professional global investors, such as Sequoia or Softbank, and look for financial returns.
  2. Tech companies such as Alibaba, Tencent and Xiaomi (or their various arms), which want a serious presence in the Indian market, just as Walmart (via Flipkart) and Amazon do.

Now, coming back to the actual question.

Can we really boycott Chinese products or investments?

If we really look into the Chinese investments made in India, then there are big names in them. They are :

  1. HDFC Bank
  2. Swiggy and Zomato
  3. Byju’s
  4. Bigbasket and Delhivery
  5. Flipkart and Snapdeal
  6. Paytm
  7. Ola
  8. Oyo

Given the huge investments China has made in India, they would be planning their exit strategies according to the terms agreed. Also, most of the names mentioned above are used in most of the Indian households and hence probably, very difficult to boycott all of them. So, it needs a strong strategy to say no and not just boycott the Diwali lights (start using diyas and boycott the Chinese lights). There needs a collective action both by the public and government if at all, the Indian economy is to be insulated against hostile takeovers.  We need more than just desire to take strong long-term measures if China’s expansion in the Indian market needs to be controlled or stopped in India.

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Can We Really Boycott China?
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Can We Really Boycott China?
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Can India really boycott Chinese goods and products? Given the huge investments China has made in India, it needs a strong strategy to say no to Chinese goods and technology. Read on the article to know in detail.
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