China-linked tech companies are finding ways to break back into India, giving fresh hope to investors that their businesses can overcome trade tensions between the countries and power new growth.
Online fashion company Shein has pursued an alternative deal structure to relaunch in India in partnership with Reliance Industries, the country’s biggest listed company. It had been among dozens of Chinese apps banned in 2020 over alleged national security concerns following deadly clashes on India’s border with China.
Battlegrounds Mobile India, a shooter game published by the Tencent-backed South Korean company Krafton, relaunched on app stores last week, a year after it was banned allegedly over fears that Indian user data was being transferred to servers in China.
Without naming China, Indian minister Rajeev Chandrasekhar said last month that BGMI would be available for a three-month trial after addressing concerns over “server locations [and] data security”.
Shein’s partnership with Reliance — recently approved by the government — is a licensing agreement where the Chinese group will receive a percentage of Reliance’s profits from sales of its clothing rather than invest directly in India.
“This could well be an inflection point for future such structures to be adopted,” said Karam Daulet-Singh, managing partner of foreign investment-focused law firm Touchstone Partners.
“You need someone of Reliance’s stature and position in the Indian ecosystem in order to be able to do something so high profile, and not try and keep it below the radar.”
Shein last year also made its Singapore arm its de facto holding company, a strategy known as “Singapore washing” that is being deployed by Chinese investors looking to take corporate stakes in countries that are sensitive to mainland investment.
BGMI’s return could prove significant to a gaming sector hit by a series of abrupt bans on popular games for alleged links with China. Krafton last month said the ban on BGMI, which had 100mn downloads as of last year, had hit the growth of its mobile business, but it had now “put in place several measures to ensure compliance with all applicable regulations”.
“This is something [other gaming companies] can definitely consider as a precedent,” said Ranjana Adhikari, a technology partner at law firm IndusLaw.
The Shein and BGMI developments do not follow any official policy change in New Delhi, and severe curbs on investment from China remain. Regulations introduced in 2020 stipulated that any deal in which the “beneficial owner” was Chinese or based in China would require New Delhi’s approval.
Investors expect this to continue, keeping out all but the most determined companies. However, deals such as Shein’s tie-up with Reliance, which do not involve foreign direct investment, do not require the same approvals.
The 2020 rules led to a sharp slowdown in deals. Investors in China participated in 53 Indian tech funding rounds worth $2.8bn last year, compared with 72 worth $3.1bn in 2019, according to figures from data provider Tracxn.
India’s finance minister Nirmala Sitharaman said in March that 54 investment proposals from China and Hong Kong were awaiting government sign-off.
By contrast, Indian venture capital deals involving a Singaporean entity jumped from 68 in 2019 before the rule change to 205 in 2022, according to data from Refinitiv.
Some lawyers and investors argue that routing investments through other countries such as Singapore has helped, despite the restrictions on beneficial ownership. A number of Indian companies also have holding companies in Singapore.
“There is nothing illegal about it, but there is a sense now after a few deals have been successful that having the investor entity based in Singapore rather than China might help with the approval process,” said one Singapore-based lawyer who advises Chinese clients on investments in India.
Shunwei Capital — established by Chinese smartphone maker Xiaomi’s founder Lei Jun — invested in Indian market automation platform WebEngage and dairy brand Country Delight last year through its Singaporean affiliate, SWC Global, set up in 2020. Shunwei declined to comment.
One Indian official disputed the point that attitudes had softened but said New Delhi was receptive to proposals. “There was never a blanket ban on anything Chinese,” the official said. “Wherever there is a case which seems to be good for the country, we do what is good for the country.”
However, onerous delays and strict data storage requirements still put off many would-be investors.
One Hong Kong-based venture capitalist who invests in early-stage companies in India said that while “there has always been interest . . . India is one of the most bureaucratic countries in the world”.
“When investors see it could take over a year to get approvals, they just 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 could no longer be as picky.
“If you go to the government today and say, ‘Hey, I want to do a [deal]’, they’re not likely to shut the door on you,” he said.
But he added that this had not yet translated into more activity. “If there’s no certainty . . . money is not going to start to flow back in,” he said. “Not too many players can play the regulatory game that Reliance can play.”
The director of one Chinese venture capital fund with a Singaporean entity said: “I got the sense that India had a painful realisation of how important mainland investment was to the growth of its start-up industry after tech fundraising fell off a cliff in 2022.
“Shutting the taps off entirely did not work out well.”
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