Tech Crackdown by China and Investment in India

The Tech Crackdown by the Chinese authorities was the least expected when the world was still struggling with the Coronavirus pandemic. It took everyone by surprise. China's tech crackdown which started in 2021 is aimed at reorienting the technologies aligning with the national technological priorities of the countries aimed to gain global technology supremacy, stopping monopolies as well as bringing the increasing inequalities down, however a costly affair. This has caused a lot of stress on the Chinese technology firms, investors, venture capital and private equity firms which have invested in China. As a result, a lot of money has started flying to India, the second hottest destination for such money. The loss of China is becoming the gain for India. However, the data suggest that there persists a lot of gap in the flow of private equity and venture capital investment between the two economies.

In the first three quarters of 2021, India witnessed a growth of 147% while China posted a growth of 101% in venture capital investments. This looks very impressive from an Indian point of view but in absolute terms as well as the volume of the investment received by both economies, China remains the first preference of investors despite the tech crackdown. India received venture capital investment of $20 billion in the first three-quarters of 2021against $8 billion in the previous period while China received $67 billion against $34 billion. This difference itself speaks volumes about the confidence of investors in the Chinese economy. Most importantly, this difference is not just imaginary but institutional and due to infrastructure put in place by China over years. China has been able to put the right mix of infrastructure and policy support in place. There is another aspect to this statistic. The average ticket size of venture capital investments in China is far bigger than that of India. This indicates that VC/PE firms are ready to take bigger investment risks in China in comparison to India.

With the post-tech crackdown by the Chinese authorities, the flow of venture capital investment in India has increased and this has created optimism and is good. It is a much-deserved optimism that India has earned in the last 75 years but this optimism wouldn’t be sufficient. It must result in the right ecosystem and proper infrastructure in place and this can happen only if the governments (central and states) strategically invest in R&D activities in a focused manner which the central government is trying to some extent while creating a favourable ecosystem for entrepreneurship which still is not seen as a preferred option by most of the Indian citizens.

The tech crackdown by China would cost and hurt the future flow of investments in China but depending on such events will keep India the second preference for the VC and PE firms, not the first choice. India needs to be the first preference of the VCs and PEs through a change in the ecosystem rather than depending on the Chinese tech crackdown.

Rajeev K. Upadhyay

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