Internet & Tech

Elephant in the room

Chinese tech firms are looking to ride on Indian growth

A visitor listens to a briefing by employees of China's Cheetah Mobile at the company's information kiosk at "Surge 2016" in Bengaluru

Racing ahead in India

China once held a monopoly on what was then the world’s most valuable commodity: tea. The fragrant leaves of China found a hugely receptive market in nineteenth century Britain, which was so keen on its cuppas that it refused to rely on the Chinese for their exclusive supply. So the secrets of tea production were stolen in a daring act of botanical espionage and transferred to British India, where the industry flourished. For a fuller description of the theft, WiC recommends For All The Tea in China (we profiled the book in issue 57).

Now China seems to be griping at India’s ambitions to steal from its economic arsenal yet again – this time by copying its more recently formulated ‘workshop of the world’ growth model. Since the Indian Prime Minister Narendra Modi came to power in 2014 he has advocated a “Make in India” policy, carefully presenting India’s manufacturing capacity as a force for the future, and hinting that the “Made in China” label is more of the past.

India’s economic growth figures have provided welcome support for the country’s boosters. Data released by the government predicts that GDP will grow 7.6% in the financial year (that ended in March): higher than the 7.2% last year, and above China’s 6.9% GDP growth in 2015.

The news touched a nerve in the Chinese press. Irked by the suggestion that India was taking on the mantle of a faster-growing economy, the patriotic Global Times dismissed the superior rate as “paper growth”. One argument was that the Modi government had come up with a new way of calculating GDP. Another was that India was benefitting disproportionately from the plunging oil price, which wouldn’t last. Indeed, the Chinese newspaper even tried to claim that India’s more rapid economic development was a problem, creating “increasingly serious social problems” such as “ethnic conflicts, religious conflicts and regional unrest due to the catalyst of the disparity between the rich and the poor”.

An opinion piece posted on Sohu, a Chinese news portal, then listed four reasons why India will never surpass China in economic might: its illiteracy rates are too high; its industrial networks are poor; its economic leadership is far weaker than China’s; and its GDP isn’t that “good” anyway.

Other analysts agree that it will take many years of consistently strong growth before India’s economy can come close to surpassing China’s. But India’s attractions – and the prospect that it might transplant more than the tea industry from the Middle Kingdom – are drawing new attention from outside its borders.

Possibly foremost are Chinese tech firms, which are eyeing India for the next phase of their e-commerce revolution.

“The consensus in China seems to be that India will be the next growth engine for the entire global internet market, because of its population, economic growth and rising internet penetration,” says Alex Yao, senior vice-president of Cheetah Mobile.

Cheetah (which develops utility software for Android operating systems) is one of the Chinese tech firms enjoying success on the subcontinent, along with UCweb, APUS and SHAREit.

A report in Southern Weekend claims that Alibaba-owned UCweb (a provider of services such as mobile internet browsing) has more than 100 million users in India, APUS (which makes apps that improve operating systems on Android phones) has about 30 million users and SHAREit (a mobile file sharing app) is the leading software of its kind in the country.

Mirroring Yao’s observation, rising population and internet penetration are the key reasons for the companies’ interest in India. Its population is due to surpass China’s by 2022, making it the world’s largest, with roughly half of its population under 25 years if age.

The benefits of a young, tech-savvy population coupled with decreasing smartphone costs look certain to boost internet and e-commerce usage.

A report from HSBC found that India’s smartphone penetration was only 30% in 2014 (compared to 95% in China), but that rate is expected to rise to 65% by 2019.

To tap into India’s prospective success, Chinese companies are joining up with local partners. Last year APUS linked up with InMobi, a mobile advertising firm described by Reuters as “one of the few Indian start-ups to make a profit”.

Speaking of the merger, APUS founder Li Tao said: “While we have grown quickly worldwide in the past year, we think the opportunity that exists in India is still largely untapped and will lead the third wave of mobile growth.”

Unsurprisingly, Hangzhou-based Alibaba has shown some of the greatest ambitions. It was part of a consortium that spent $500 million last August for a stake in Snapdeal, an e-commerce site that delivers to 5,000 Indian towns and cities and hosts 150,000 sellers on its platforms. Alibaba’s e-payments arm Ant Financial also purchased a 20% stake in PayTM, India’s largest mobile payment app.

Alibaba’s rival Tencent has invested in an Indian medical app called Practo, while Reuters reports that Baidu is looking closely at a number of Indian start-ups such as Zomato and BookMyShow.

Chinese e-commerce revenues grew nearly 600% between 2010 and 2014, and the Economist has cited predictions that something similar will happen in India, taking the subcontinent’s e-commerce sales from last year’s $16 billion to close to $110 billion by 2020.

Of course, in India the BAT trio will have to fight for the spoils with competitors like Amazon and Google, as well as local success stories like Flipkart. Cheetah’s Yao also adds a note of caution: “Global venture capital investors, as well as tech companies, have flooded in, thinking India is the last viable place to develop a billion-dollar company. But India is also the hardest market to successfully monetise, because the infrastructure of the information networks is so weak.”

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.