Chinese venture capitalists provided a record amount of funding for Indian start-ups last year, fuelling concerns about their influence amid frosty relations between the two countries.
In the final quarter of the year, deals involving Chinese investors totalled a record $1.4bn, according to figures from Refinitiv. Data provider Tracxn said Chinese funds invested in 54 funding rounds last year — the largest ever number — compared with just three in 2013 and more than double what it was in 2017.
This has helped turn China into one of the biggest sources of funds for start-ups in India, joining well-established investors like Sequoia and SoftBank. Two-thirds of India’s start-ups valued at more than $1bn now have at least one Chinese VC investor.
Alibaba has invested in payments group Paytm and food-delivery service Zomato, while fellow Chinese internet giant Tencent has backed car-hailing app Ola and Byju’s, an education start-up.
Funds like Shunwei Capital and Morningside Ventures have also become more active, investing in start-ups including bike taxi app Rapido and ShareChat respectively.
Tracxn co-founder Neha Singh said that the less-developed Indian scene offers Chinese funds more potential for domination than at home, where market leaders are generally well established.
“India is a large market where a lot of the models have yet to pan out, to create large dominant players,” said Ms Singh. “In China a lot of those patterns have been taken. It’s a very well-capitalised economy.”
The Observer Research Foundation, a think-tank, said: “Given China’s excess finance and technology expertise, India is the only country that has the market and the strength to absorb China’s excess capacity.”
But it added that this would have “seemed to be unthinkable till almost a decade ago”.
India and China have long been geopolitical rivals. This has translated into Indian caution about Chinese investment. It has resisted participating in China’s Belt and Road infrastructure building scheme, for example, in contrast to neighbours including Pakistan and Sri Lanka.
Chinese businesses such as smartphone maker Xiaomi and car manufacturer SAIC Motor have nonetheless expanded in India.
“Chinese funds are playing a positive role by helping Indian start-ups to raise more capital,” said Amit Bhandari, a fellow at Gateway House, another think-tank. But, he continued, “China is the rival . . . [it’s] influence has not always been very positive.”
Chinese investment can come with a degree of stigma for Indian start-ups. Politicians have expressed concerns that data could be leaked to China, for example and in 2016, Paytm founder Vijay Shekhar Sharma had to explicitly reassure users that his company remained Indian, despite Alibaba being its largest investor.