Businesses and investors linked to China want to return to India

Tech companies tied to China are finding ways to make their way back to India, giving investors renewed hope that their businesses can offset trade tensions between the countries and spark new growth.

Online fashion company Shein has pursued an alternative deal structure to resume operations in India in partnership with the country’s largest listed company Reliance Industries. It was one of dozens of Chinese apps banned in 2020 over alleged national security concerns following deadly clashes along India’s border with China.

battleground mobile indiaA shooter game published by Tencent-backed South Korean company Krafton was relaunched on the App Store last week, a year after it was reportedly banned over fears that Indian user data was being transferred to servers in China. being done.

Without naming China, Indian minister Rajeev Chandrasekhar said last month that bgmi Will 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 conglomerate will receive a percentage of Reliance’s profits from the sale of its clothing instead of investing directly in India.

“This could be a turning point for the adoption of such structures in the future,” said Karam Daulat-Singh, managing partner at Touchstone Partners, a foreign investment-focused law firm.

“You need someone of Reliance’s stature and position in the Indian ecosystem to do something high profile, and not try and keep it under the radar.”

Sheen also last year made its Singapore branch its own de facto holding company, known as “Singapore Washing”, which is being positioned by Chinese investors to pick up corporate stakes in countries sensitive to mainland investment.

bgmiThe return could prove crucial for the gaming sector which has been hit by a series of sudden bans on popular games for alleged links with China. Crafton called for a ban last month bgmiwhich had 100 million downloads over the past year, had hit growth in its mobile business, but has now “taken a number of measures to ensure compliance with all applicable regulations”.

“It’s something (other gaming companies) can definitely consider as a precedent,” said Ranjana Adhikari, technology partner at law firm Induslaw.

sheen and bgmi The developments do not follow any official policy changes in New Delhi, and severe restrictions on investment from China remain in place. Regulations introduced in 2020 stipulated that any deal in which the “beneficial owner” was Chinese or located in China would need New Delhi’s approval.

Investors expect this to continue, driving out all but the most determined companies. However, deals such as Sheen’s tie-up with Reliance, which do not involve foreign direct investment, do not require the same approval.

The 2020 regulations led to a sharp decline in deals. According to data provider Tracxn, investors in China participated in 53 Indian tech funding rounds worth $2.8 billion last year, compared to 72 rounds worth $3.1 billion in 2019.

India’s Finance Minister Nirmala Sitharaman said in March that 54 investment proposals from China and Hong Kong were awaiting government signature.

In contrast, Indian venture capital deals involving a Singapore unit rose from 68 in 2019 to 205 before the rule change in 2022, according to Refinitiv data.

Some lawyers and investors argue that despite restrictions on beneficial ownership it has helped route investment through other countries such as Singapore. Many Indian companies also have holding companies in Singapore.

A Singaporean lawyer who advises Chinese clients said, “There is nothing illegal in this, but after a few successful deals there is now an understanding that having an investor entity based in Singapore rather than China can help with the approval process.” Is.” on investing in india

Shunwei Capital – founded by Chinese smartphone maker Xiaomi founder Lei Jun – has ventured into Indian market automation platform WebEngage and dairy brand Country Delight last year through its Singaporean affiliate, SWC Global in 2020. Shunwei declined to comment.

An Indian official disputed the point that the attitude had softened but said that New Delhi was receptive to the proposals. “There was never an outright ban on anything Chinese,” the official said. “Wherever there is a matter which seems good for the country, we do what is good for the country.”

However, huge delays and strict data storage requirements still put off many potential investors.

A 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 that it may take more than a year to get approval, they leave,” the investor said.

Rajeev Suri, managing partner at Mumbai-based Oreos Venture Partners, said the slowdown in tech funding over the past year means India may not be as picky now.

“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 said this had not yet translated into more activity. “If there’s no certainty . . . the money isn’t going to start coming back,” he said. “Not many players can play the regulatory game that Reliance can.”

The director of a Chinese venture capital fund with a Singapore unit said: “I understand how important mainland investment is to India for the development of its start-up industry after tech fundraising fell off the cliff in 2022.” Yes, it was a painful feeling.

“It was not okay to completely turn off the tap.”