INSIGHTS | Does India need China tech?

All eyes in the tech world are focused on the two neighbors and what this means for the future of global tech. After years of deep engagement, where does it go from here? 

Bottom line: This is not the first time a Chinese app has been banned in India, but this time is different. The app ban ushers a new phase in China-India relations. Geopolitics will drive tech engagement between the two countries going forward. This will entail some economic pain for both countries, as India tries to reduce its reliance on China’s tech stack. Unless the two sides find a way to get past the border, this is the end of China and India’s tech romance. 

Three motives: New Delhi has cited data sovereignty and security as legal justifications, but the true driving motives are more likely:

Retaliation: Since 1988, the bilateral relationship has revolved around a consensus: manage the border peacefully and the rest of the relationship can grow and develop. Until now.

• This was gradually solidified in the form of multiple border agreements from 1993 to 2014. Over the years “‘incursions” took place but they were ultimately resolved peacefully. 

• New Delhi reads Beijing’s behavior on the border as a sign of intent to unilaterally change the status quo—and it feels it must re-consider the thirty-year consensus. Although whether economic retribution will create the desired military deterrence or change in behavior is far from clear. 
• Union Minister Ravi Shankar Prasad himself called the ban a “digital strike.” 
• Influential Indian military experts have argued that military options would be more effective.

Economic “self-reliance”: In a May speech made as tensions were rising on the border, Prime Minister Modi called for a movement for a “Self-Reliant India” that extends beyond China.

• But India’s acute economic reliance on China (17% of Indian imports come from China), coupled with border-related security concerns, means China is seen as a key part of the problem. 
• The border clash and the resultant public opinion swing against China creates an opportunity to make big moves: An “end to business as usual” with China. 

Fighting fire with fire: Blocking access to apps and claiming “data sovereignty” is a page out of Beijing’s own internet sovereignty playbook.

• India may not yet have a technical infrastructure for internet blocking like the Great Firewall but it is asserting its national boundaries on the internet in a similarly blunt fashion. 
• After years of a more laissez-faire attitude towards internet governance, India is now more proactively thinking about Indian citizens’ data and consumer data trails. 
• Much like Beijing, it doesn’t just want to protect economic and national security interests, but also the cultural values that underpin technology platforms in India. 
• India is where China was a decade ago. Sweeping regulations around the internet are forthcoming in the coming years that may borrow more from Beijing.
• Chinese tech companies are the center of attention—for now. In the future, US firms may also face pushback as the Indian government exerts control over how platforms are governed and how data is processed. 

The US & Jio factor: Silicon Valley companies are poised to benefit as a China-shaped vacuum appears. The unprecedented pouring of investment into one Indian company in particular firmly connects the valley to India.

• Earlier in the year, Facebook invested $5.7 billion in Reliance Jio Platforms, a telecoms giant with ambitions to become a tech conglomerate.
• Amid the China app ban furore, Google followed suit with a $4.5 billion investment as part of its $10 billion “Digital India” fund. 
• Following the two investments, Jio is effectively a US-backed Indian national champion, free of Chinese tech. 
• Google and Jio plan to jointly build affordable smartphones, directly challenging a market dominated by Chinese smartphone players. 
• Jio is ambitiously aiming for all layers of the tech stack; telecoms (currently occupies), devices, OS, and apps. 
• With the right moves, Jio could not only fill China-shaped holes in India, but become a global tech giant. 

More pain for India? Apps are only a small part of why India relies on China. If Delhi is really going to pursue “self-reliance,” it will mean a lot more pain.

• Dozens of major Indian tech startups received investments from Chinese technology companies and VCs over the past five years. 
• Chinese smartphone manufacturers Xiaomi, Oppo, Vivo, Realme, and OnePlus hold 80% of the Indian market. 
• India’s digitization growth means it is also reliant on hardware imports from China of key components such as value parts such as sensors and transponders, among others.

Pain for Chinese tech firms: Tiktok is the biggest hit among the 59 banned apps. Although India represents a relatively small percentage of Tiktok’s revenue today, it is the cornerstone of Tiktok’s growth projections, with potential losses touted as being up to $6 billion. 

• Chinese companies built apps for India and invested in local startups because India was the only other market that could be as big as China. 
• Now they may lose access to the Indian market just as domestic demand is projected to take off. This is a major blow to the global aspirations of Chinese tech giants. 

Looking forward: A ban alone does not put an end to Chinese tech in India. It’s even possible, if perhaps unlikely, that Tiktok may make a comeback. But this episode marks an end to the first phase of China-India tech romance. 

• It is unlikely the two countries will find a workable reset along the border anytime soon. Tensions are unlikely to lead to military escalation, which would be catastrophic for their tech engagement.
• The most likely scenario is a turbulent and frosty relationship: no more big tech investments from China, very low-key engagement between large Chinese tech companies already invested, and some exits by smaller players.
• Indian consumers and businesses will continue to buy Chinese smartphones and hardware imports due to the lack of immediate alternatives, but Jio’s shadow looms large.
• Don’t expect barriers to Chinese tech and public opinion to blow over.