Rising tensions between the two countries are starting to raise questions about the future of Chinese tech in India.
In back five years, firms including short-video giant Bytedance, e-commerce firm Alibaba, social media behemoth Tencent, and smartphone maker Xiaomi have participated in funding rounds for Indian startups totaling more than $12.3 billion, according to my analysis of public data. These investments have helped to scale Indian unicorns like Paytm, Snapdeal, Swiggy, and Ola.
Chinese investors – both strategic and financial – have pumped in $3.9 billion in 2019, up from $2 billion in 2018, ET reported earlier.
In the process, they have emerged as the biggest backers of the country’s fast-growing digital economy, supplanting the United States.
For now, the startup ecosystem is waiting for detailed notifications under the Foreign Exchange Management Act (FEMA) and from the Reserve Bank of India, expected in the next two weeks.
“It will spook Chinese investors, even those that are looking to invest in sectors that come under the automatic route, such as e-commerce, fintech, digital services and logistics, which aren’t perceived as sensitive sectors,” Atul Pandey, partner at leading law firm Khaitan & Co, told ET.
According to economic times indiat, a Chinese investor participating in an upcoming funding round in its existing portfolio companies will also need to get necessary approvals from the government before continuing to chip in money.
Investors and startup founders sharply criticised the government’s move. “We’re a capital-deficient country. There isn’t enough domestic capital to sustain economic growth. Yet we continue scoring own goals like retrospective taxation, transfer pricing, super-rich surcharge and now FDI approval. We’re not hurting the investors, we’re hurting our economy,” Ritesh Banglani, partner at Stellaris Venture Partners, wrote on microblogging platform Twitter.
Legal experts also said that enforcing the notification would be “close to impossible.”
“The impracticality of making small investments/cheques in startups subject to government approvals is overwhelming. Implementing it is almost next to impossible,” said Santosh Pai, partner at Link Legal India Law Services, which advises a number of leading Chinese investors in India