India & The Tech War
It's not only about US-China
The past several years have seen the highly-globalized tech sector whiplashed by geopolitical crosswinds. While that story primarily focuses on the ongoing US-China trade and technology “war,” with good reason, it’s worth noting that a growing rivalry between the planet’s two most populous countries has bled into the tech space with similarly disruptive ramifications.
From the FT:
India has stepped up a crackdown on the Chinese companies that dominate its smartphone market in a series of legal actions that have raised trade tensions between Asia’s two biggest nations.
Oppo, which sells both the popular realme brand and its eponymous marque, was accused by Indian regulators of tax evasion this week. That followed recent raids, lawsuits and sweeping asset seizures against Xiaomi and Vivo. Together, the three Chinese technology groups control about 60 per cent of India’s smartphone market.
The pressure on Chinese smartphone brands comes as New Delhi seeks to build up its domestic tech sector and reduce dependence on imports, and against a backdrop of frosty relations between the two nuclear-armed neighbours over their disputed border.
As a quick caveat, it’s worth mentioning here that tax evasion, which costs the state untold billions, is rampant in India due to a combination of weak enforcement capacity and extensive corruption. However, despite official claims to the contrary, I don’t find it coincidental that it’s three of China’s leading consumer-facing electronics brands that have recently drawn the wrath of the Indian state.
Let’s also recall that this isn’t the first time Indian authorities have targetted high-profile Chinese tech players operating on the subcontinent:
Last summer, India's Ministry of Electronics and Information Technology executed a “digital strike”—permanently banning (the massively popular) TikTok, WeChat, Alibaba's UC Browser, and 56 other Chinese apps due to concerns over data privacy and national security.
This February, two Huawei Technologies offices, in Bangalore and outside New Delhi, were raided over similar suspicions of tax evasion.
While eschewing a formal written ban over fears of upsetting Beijing, it’s widely understood that the Indian government is “phasing out equipment from Huawei and other Chinese companies from its telecoms networks” while also making clear that Indian service providers refrain from using China-made gear when rolling out 5G networks.
Earlier this summer, India scuttled Chinese carmaker Great Wall Motor’s $300 million bid to purchase a General Motors (GM) manufacturing facility in Maharashtra. The failed acquisition was the cornerstone of Great Wall’s plans to invest $1 billion to expand operations on the subcontinent.
With an eye toward China, “New Delhi in 2020 made a prior government approval, including a security clearance, mandatory for any FDI coming from countries that share land borders with India,” writes the Economic Times. “Until mid-2021, the government did not give any approvals for such FDI.”
Barring TikTok and WeChat, cracking down on Chinese FDI, and turfing Huawei out of India’s 5G rollout deals a heavy blow to China’s tech juggernauts at a time when they’ve been actively expanding their global footprint, especially in emerging markets throughout the Global South.
The context around all of these actions is fairly straightforward and rooted in increasingly frigid Sino-Indian relations. In June 2020, at least 20 Indian soldiers were killed in armed clashes with PLA troops above the Galwan Valley near the India-China border. The unresolved border dispute between Beijing and New Delhi is a long-standing point of friction between the two Asian giants.
It’s hard to overstate the extent to which the June 2020 clash, and the mutual recriminations that followed, damaged bilateral relations. As Gideon Rachman put it at the time, Indian citizens felt “assaulted and humiliated by China” and “there is now near-consensus in the Indian policymaking elite that China is a hostile power and that India’s only feasible response is to move closer to the US and to Asian democracies, such as Japan and Australia.” Two years on, the blowback continues rippling through India’s tech sector.
This is all a marked departure from a few years earlier when attracting Chinese investment dollars was an important piece of Prime Minister Narendra Modi’s widely-hyped (and grammatically awkward) “Make in India” strategy. Early in his tenure, Modi enthusiastically courted Beijing, the geopolitical rivalry was (mostly) placed on the back burner, and the PM met with President Xi at least 18 times between 2014 and 2020. Following the flag, Chinese firms like SAIC Motor Corp, BYD, Tencent, and Alibaba ratcheted up their footprint on the subcontinent. Xiaomi‘s decision to create an Indian manufacturing center was seen as an early vote of confidence in Modi’s economic program. By 2020, it was estimated that Chinese venture capital held positions in two-thirds of all Indian startups valued at $1 billion or higher.
Of course, that was only part of the story. A number of issues—the “special relationship” between China and Pakistan, Modi’s close alignment with both Japanese PM Abe Shinzo and US President Donald Trump, the PLAN’s expanding footprint in the Indian Ocean, New Delhi’s s refusal to co-sign on Beijing’s linchpin Belt and Road Initiative (BRI), and China’s potential “chokehold” over India’s water supply—presented serious points of ongoing geopolitical friction in the runup to the 2020 clash.
It’s also worth pointing out that While India rocketed up the World Bank’s “Ease of Doing Business” rankings early in Modi's tenure, extensive protectionism and a desire to create “national champions" in strategically important sectors remained hallmarks of the country’s political economy and longstanding irritants for international investors. The 2020 COVID crisis reinforced deeply-rooted fears over Chinese companies gaining too much leverage over the country’s tech space by snapping up prized assets on the cheap; prompting New Delhi’s decision to beef up existing FDI policy and block “opportunistic takeovers.”
I think the domestic context matters here, too. Under Mssrs. Modi and Xi, China and India have both seen a chilling and coarsening of their political climates. Hyper-nationalism, grievance-based politics, anti-pluralism and the stifling of dissent, and a deep-seated focus on safeguarding sovereignty in the face of a fast-changing and deeply interconnected global order that often feels chaotic, threatening, and unmanageable are hallmarks of our age. Both Xi and Modi effectively harnessed these sentiments to build support around a highly personalized (and polarizing) “strongman” leadership style. To my mind, these domestic dynamics—the constant focus on signaling that “we” will not get pushed around by “them”—are a key driver of the increasing “securitization” of national trade and technology policies.
Data, Tech, Techno-nationalism
Like it or not, digital connectivity and the telecom infrastructure undergirding it—in my mind, the single largest driving force behind globalization—are now at the forefront of 21st Century geostrategic competition. As Mark Leonard puts it:
As the world becomes ever more crowded and digitally connected, these points of contact create more potential sources of conflict, and supply more opportunities to interfere in each other’s affairs. Connected networks are the transmission belts – allowing people and nations to turn our open societies against themselves.
I find it unsurprising, then, that Chinese telecom equipment providers like ZTE and Huawei, and platforms like TikTok and WeChat, are feeling the effects of the Sino-India breakdown most acutely. New Delhi’s crackdown reflects similar fears held by American, Chinese, Japanese, and European officials over the risks of digital interdependence.
Whether or not those fears are fully realized—in the form of shutting down a network, tweaking an algorithm, or weaponizing data flows—is beside the point. The fact that these things could happen, that “they” could do it to “us,” is shifting national priorities from building a “borderless and open” digital commons to a more aggressive focus on safeguarding domestic information security—even if this newfound emphasis on control comes at the expense of efficiency, cost, or stifled innovation potential.
Having said all that, context matters. Fracturing does not equal a clean break. Four of India's best-selling smartphones (excluding Samsung) come from China. India cannot totally shirk its reliance on Chinese-branded electronics for a simple reason: they’re popular, affordable, and no viable alternatives currently exist on the market. Apple does not offer products at an affordable price point for the majority of Indian consumers, and domestic alternatives, lacking the features and functionality of their Chinese competitors, have yet to gain significant traction.
For now, Indian consumers need Oppo, Vivo, and Xiaomi just as much as the brands need access to the world’s second-largest smartphone market. That does not, however, mean that Indian officials are beyond strong-arming Chinese firms operating in nationally sensitive sectors where New Delhi is keen to build up domestic alternatives. As The Economic Times points out, while India has approved 80 FDI proposals from Chinese entities, a shift from the near-total FDI freeze over the preceding year, the approvals process tends to be slow-moving, case-by-case, and focused on capital-intensive physical manufacturing rather than high-value digital assets. Investment proposals that come from entities perceived as being “close” to Beijing, touch on issues of data privacy and information security, or “arrangements where the Chinese entity will get board representation or other passive tools of control” are not playing well in New Delhi.
I think the big takeaway here is this: India’s spate of moves underscores the core thesis of this newsletter. In the current political climate, cross-border trade, investment, and data flow—once near-universally seen as mutually beneficial—increasingly represent unacceptable points of vulnerability that hostile actors can leverage to gain the upper hand in heated geopolitical disputes.
High-profile “incidents“ which wound national pride and provoke a flurry of outrage across social media platforms, when situated in a hyper-nationalist political climate, can quickly metastasize into massive operational challenges for multinationals stuck in the middle; especially when issues surrounding data security and telecom infrastructure are at stake. For better or worse, the movement towards “techno-sovereignty,” the antithesis of a borderless, globalized world imagined by many digital utopians in the aftermath of the Cold War, continues to gain steam. As the India example makes clear, this phenomenon extends well beyond DC, Brussels, and Beijing.