China-linked technology companies are looking for ways to return to the Indian market, giving investors renewed hope that their businesses can overcome trade tensions between the two countries and drive new growth.
Online fashion company Shein sought an alternative deal structure to relaunch in India with Reliance Industries, the country’s largest listed company. It was one of dozens of Chinese apps banned in 2020 over alleged national security concerns after a deadly clash on the India-China border.
Battlefield Mobile Indiaa shooter game published by Tencent-backed South Korean company Krafton, relaunched on the app store last week after it was reportedly banned a year ago over fears that user data in India would be diverted to servers in China.
Indian Minister Rajiv Chandrasekhar did not name China last month, saying BAIC Group A three-month trial is available after concerns about “server location (and) data security” have been addressed.
Shein’s partnership with Reliance — which was recently approved by the government — is a licensing agreement under which the Chinese group will receive a percentage of profits from Reliance’s clothing sales, rather than investing directly in India.
“This is likely to be a tipping point for future adoption of such structures,” said Karam Daulet-Singh, managing partner at Touchstone Partners, a law firm that focuses on foreign investments.
“You need someone like Reliance who has the stature and stature in the Indian ecosystem to do something so high profile and not try to keep it under the radar.”
Shein also made its Singapore branch its de facto holding company last year, a strategy known as “washing Singapore” that is being deployed by Chinese investors looking to take stakes in companies in countries sensitive to mainland investment.
BAIC GroupIts return could be significant for an industry hit by a series of sudden bans on popular games over alleged ties to China.Crafton said the ban last month BAIC GroupGrowth in Facebook’s mobile business, which hit 100 million downloads last year, has taken a hit, but it has now “taken a number of steps to ensure compliance with all applicable regulations”.
“This is something (other game companies) can definitely consider as a precedent,” said Ranjana Adhikari, a technology partner at law firm IndusLaw.
glossy and BAIC Group The developments did not follow any official policy change from New Delhi, where strict restrictions on Chinese investment remain in place. Regulations introduced in 2020 require New Delhi’s approval for any deal where the “beneficial owner” is Chinese or located in China.
Investors expect this to continue, shutting out all but the most determined companies. However, deals that do not involve foreign direct investment, such as Shein’s deal with Reliance, do not require the same approval.
The 2020 rules have caused a sharp slowdown in transactions. Chinese investors participated in 53 rounds of Indian tech funding worth $2.8 billion last year, compared with 72 rounds worth $3.1 billion in 2019, according to data provider Tracxn.
India’s Finance Minister Nirmala Sitharaman said in March that 54 investment proposals from China and Hong Kong were awaiting the government’s signature.
In contrast, Indian VC deals involving Singaporean entities jumped from 68 in 2019 before the rule change to 205 in 2022, according to Refinitiv data.
Some lawyers and investors believe investing through other countries, such as Singapore, helps, despite the restrictions on beneficial ownership. Many Indian companies also have holding companies in Singapore.
“There’s nothing illegal about it, but after several successful deals, there’s a feeling now that having the investor entity in Singapore rather than China might help with approval,” said a Singapore-based lawyer advising Chinese clients. Procedures.” On Investing in India.
Shunwei Capital, founded by Chinese smartphone maker Xiaomi founder Lei Jun, invested in Indian market automation platform WebEngage and dairy brand Country Delight last year through its Singapore subsidiary SWC Global, which was launched in 2020. Shunwei declined to comment.
An Indian official disputed the softening view but said New Delhi was open to the proposal. “There was never a blanket ban on any Chinese product,” the official said. “As long as there are cases that seem to be good for the country, we will do what is good for the country.”
However, onerous latency and stringent data storage requirements still deter many potential investors.
A Hong Kong-based venture capitalist investing in early-stage companies in India said that while “there has been interest … India is one of the most bureaucratic countries in the world”.
“When investors see that it might take more than a year to get approved, they walk away,” the investor said.
Rajeev Suri, managing partner at Mumbai-based Orios Venture Partners, said a slowdown in tech funding over the past year meant India was less picky.
“If you go to the government today and say, ‘Hey, I want to do a (deal)’, they’re less likely to close the door on you,” he said.
But that hasn’t translated into more activity, he added. “Without certainty . . . the money is not going to start coming back,” he said. “There aren’t many players who can play the regulatory game that Reliance can play.”
“My sense is that after tech funding falls off a cliff in 2022, India is painfully aware of just how important mainland investment is to the growth of its start-up sector,” said the director of a Chinese venture capital fund with a Singaporean entity.
“Turning off the tap completely is not effective.”