Crackdown in China, hope in India

Context:

In 2020, China stopped Ant Group’s blockbuster initial public offering and since then high-profile crackdowns on Chinese tech companies are increasingly common.

Relevance:

GS-II:     International Relations (India’s Neighbours and Foreign policies affecting India’s Interests), GS-III: Indian Economy (Growth and Development of Indian Economy)

Dimensions of the Article:

1. China’s crackdown on tech industry
2. Why China is tightening its grip on the Chinese private sector?
3. What has been the impact on India’s Startup market?
4. How India can benefit from China’s crackdown on the tech industry?

China’s crackdown on tech industry

• China has foisted sweeping regulations, antitrust and anti-monopoly lawsuits, cyber security probes, and algorithm controls on the entire tech segment, ranging from e-commerce websites, search engines, ride sharing and food delivery apps to e-learning portals.
• This decision to crack down on the tech industry, wiping out $1.5 trillion in market value.
• The crackdown began with the abrupt suspension of the much-anticipated initial public offering (IPO) of Ant Group.
• China’s regulators have also stopped the ride-hailing company, Didi Chuxing, from accepting new users, as soon as it went public on the New York Stock Exchange.
• There have been sweeping industry-wide changes, from anti-monopoly legislation to new rules governing data collection and use. All of this has investors spooked.

Why China is tightening its grip on the Chinese private sector?

• Chinese Capitalism: To ensure that compared to the West, “capital cannot dominate the country” and it “must not influence politics” in China.
• The economic and political rise of Chinese tech superpowers: The crackdown on digital economy firms now appears to be a case of China’s tech titans becoming too powerful. Such as e-commerce giant Alibaba and software giant Tencent.
• China’s policy of making education inclusive: Beijing has been especially hard on China’s $100 billion edtech sector. The CPC is determined to make education more affordable and inclusive. Online tutoring firms are no longer allowed to make a profit, list overseas or receive foreign investments.
• Issue of Politics: Xi wants to continue as the party supremo for another term and is clearing the road to power off his critics.

What has been the impact on India’s Startup market?

• Increasing Global investments: At least 104 of the 168 global investors in Indian fintechs this year were from the US and 40 were from Asia. In the past three years, US investor participation in Indian fintech startups went up by nearly 60%, Asian investor participation rose by 53%.
• Increasing Investments in Indian startups: India in July 2021 surpassed China in monthly venture capital deals for the first time since 2013. Over two dozen new Indian unicorns were created this year.
• Increasing Investments in India’s edtech sector: In edtech, Indian startups clocked over $2 billion in 2020 compared to $553 million in 2019. For instance, since last year, Byju’s has raised more than any other edtech firm in India. Following their path are firms such as Unacademy Group, an edtech firm that recently raised $440 million.

How India can benefit from China’s crackdown on the tech industry?

• Due to China’s crackdown, for the first time since 2013, the value of venture deals in India surpassed that of China.
• Converging factors in India: If this keeps up, India will experience a veritable blessing of unicorns, thanks not only to the fact that the money fleeing China needs refuge, but to many converging forces within India itself.
• India is the world’s second largest digital market.
• The use of the United Payment Interface has made digital payments easier in a society that was — and still is — so tied to cash.
• The pandemic lockdowns have driven an unusually large proportion of that digital population to spend an unusually large amount of time and spend money online.
• This means that in a very short time, the need to serve this digital population has exploded.
• The Chinese crackdown could not have come at a more opportune time.
• Many startups are in a hurry to capitalise on the boom with many investors looking to capitalise them.

-Source: The Hindu