Beijing’s tightening grip on its technology majors has spooked global investors, who have lost hundreds of billions of dollars over the last 10 months. The collateral beneficiary of this clampdown is expected to be Indian tech companies, which have the support of the government.
China’s loss may end up becoming India’s big gain. Chinese President Xi Jinping’s latest clampdown on China’s technology giants, from Alibaba to Tencent to Didi and others, is forcing many global investors to shift their attention to Indian technology companies – mostly start-ups – that are lining up to tap the markets to fund their expansion plans.
Investors have lost hundreds of billions of dollars in the mayhem that began last October when the Chinese government halted the IPO of Ant Group that was due to raise $34 billion, making it the world’s largest listing, breaking the record held by Saudi Aramco, which had listed its $29.4-billion IPO in 2019.
Ant Group parent Alibaba was then valued at $320 billion. It is now priced at 60 per cent of that value. Then, Tencent, which owns WeChat, has lost $170 billion in market value. To put this figure in context, that figure is 10 times the valuation of Byju’s, India’s most valuable start-up.
From ride hailing app Didi’s to food delivery behemoth Meituan to online education giants like TAL Education, New Oriental and Gaotu Techedu – China’s tech giants have been subjected to a value meltdown that has spooked global investors – and opened up opportunities for their smaller Indian rivals.
The autocratic Chinese government is wary of any private enterprise that has the reach and organisation that these tech giants enjoy and so, is doing everything in its power to undermine their legitimacy in the eyes of the Chinese people.
Of particular relevance to India is the Chinese crackdown on its edutech companies, a segment in which Indian start-ups are emerging as the new favourites not only in India but also elsewhere in the world.
A little more than two weeks ago, on July 23, the authorities in Beijing unveiled a new online education policy that has seriously curbed the growth of the sector that was worth $260 billion in 2018, according to consultancy firm LEK Consulting.
Under the new norms, edutech companies were barred from raising money from the public and mandated that those that taught school syllabi would have to be registered as non-profits. Then, they also had to stop offering programs that required students to attend online classes on weekends and during school vacations.
As a result of these new regulations, global investors such as Softbank, Temasek and Tiger Global, which have a large exposure to the Chinese edutech sector, have felt the effects of it.
Many experts feel this heavy-handed behaviour by the Chinese authorities will benefit Indian companies, at least in the short to medium term.
The website YourStory.com quoted an unnamed early-stage investor as saying: "In the short term, it will be good for India. Some of that (VC) money has to go somewhere. India will look a little more attractive now. For the first time, large edtech companies are beginning to hire public policy executives. So, they are paying attention to what is happening in China. In the long run, no one really knows."
In sharp contrast to the treatment meted out to edutech companies in China, governments in India are laying out the red carpet for such firms. For example, online education major Unacademy recently signed an agreement with the southern state of Karnataka to provide free training to 4,500 students who are aspiring to sit for competitive examinations.
The website quoted Gaurav Perti, Founder & CEO of PurpleTutor as saying: “Ultimately, it's about the demand and supply of capital. Edtech investors earlier had an option to choose between India and China. They would put disproportionate amounts of investments in China. They'll hopefully now give much more weightage to India, and this should help edtech entrepreneurs in the country.”
Consider this: The fifth largest edutech company in China is much larger than India’s largest company in this segment Byju’s. That alone shows the scale of the opportunity that has opened up for India.
Edutech apart, some experts feel the Chinese crackdown on its domestic Big Tech companies could be a fallout of the Modi government’s proactive and unprecedented step to ban more than 200 Chinese tech companies from operating in India.
This step has had a domino effect – the previous Trump administration in the US followed India’s example and clamped down on these companies as well. The Biden administration has not overturned that order; it has replaced the blanket ban with a strict framework for ensuring compliance with data security and privacy regulations.
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These moves could have alerted the Chinese authorities about the immense power that user data from billions of online interactions gave its tech companies. That would be anathema to the autocratic regime in Beijing. And that could be one of the reasons for the crackdown.
China’s crackdown on tech companies, however, does not imply that Indian tech companies will be the default recipients of global investment dollars. A number of factors, such as valuations, the Indian government’s future treatment of its tech sector as well as the innovations that it can generate will all play a big role.
For now, though, it will be safe to say Indian tech start-ups have an opening to emerge as the next big things. How they capitalise on this opportunity will determine the next chapter of the global tech development story.