Backdoor Entry Of Chinese Companies In India: Red Flags Should Have Been Up By Now

In the summer months of 2020, Chinese aggression in Ladakh was answered by the Indian army in a brave way. The barbaric war tactics of the Chinese army were paid back with bare hands by the brave hearts of the 16 Bihar regiment. The Indian government did not leave the response to the border.

In July last year, the Indian government announced a series of measures to decouple Chinese business interests from Indian firms. One of the interventions was to put greater scrutiny on any investment capital flows from countries with land borders with India. This was, of course, targeted at China, but the design was kept such that it does not violate any international laws in the trade and investment domain.

India also banned dozens of Chinese apps from Indian app stores, most notably TikTok. It should be noted that ByteDance, the parent company running the app, has since seen a dip in its financial fortunes, demonstrating what lack of access to a market as large as India can do to global consumer technology companies.

Another key example was of the popular game Player Unknown's Battleground or PUBG. The app was removed from India on security concerns. The key here was a Tencent link to the game in India. The royalties from Indian operations went to Tencent. Despite Tencent being a big investor in Indian firms, the government boldly blocked PUBG, a popular game with the young.

This shunning of China with respect to the Indian technology domain was a great pushback to Chinese aggression. The Indian government, led by Prime Minister Narendra Modi, made it clear that any act of border transgression will be countered using all available means. It was clear that economic warfare is a legitimate response to China's poor behaviour.

However, the world of international finance is complex. Through a web of interconnected companies and entities, there is a concerted effort to bring back some of the Chinese apps to India. This is already happening, and it is an area for the government to take early note of. If early cognisance of some of these issues is taken, India can effectively tackle the "Chinese Backdoor".

The "Chinese Backdoor" is essentially a financial and corporate engineering construct. Some Chinese companies are trying to re-enter India using one of the two methods.

One way is for the Chinese firms or apps to license their product to a third party. This company may originate in another country altogether with registered offices in either 'friendly destinations' like South Korea or Singapore or in financial havens like Mauritius or Maldives.

The licensee company will still have a significant shareholding of Chinese investors. They may even wield operational control by virtue of their shareholding. But this will be largely opaque to the Indian authorities as the licensee company will originate in and be based out of business-friendly locations. So effectively, Chinese management may have a significant view and control of the business without really being labelled thus.

The example of Battlegrounds Mobile India (BGMI) is pertinent here. Krafton, a South Korean firm, has been working on India's launch for a game that is similar to PUBG. Tencent owns about 15.5 per cent of the firm. Will the old PUBG team be associated with the Krafton version? Will the old management and employees be involved with the Krafton launch? These are difficult questions to answer, and even if answers were available, not much can be done about restricting a South Korean firm on mere insinuations.

ByteDance is reportedly planning to relaunch TikTok as TickTock in India. Presumably, they may also form a separate subsidiary, promise to comply with the IT rules and localise some of the data. The approach would be to say that TickTock is not really TikTok and is a fit for purpose app for the Indian market alone. But what happens in the background as far as data privacy and security is concerned? This will be very difficult for the government to judge.

Another way is to leverage other platforms. A seller of goods may open a shop on Amazon via a licensee company or its own entity based overseas. It can then market to Indian consumers through digital tools to resume Indian e-commerce operations.

Take the example of Shein – a direct to consumer apparel retail app, which was banned. They are now selling through Amazon as a hands-off seller. Via the Amazon platform, their access to consumer data may get limited relative to their app. Nonetheless, their access to the Indian market can resume.

These examples demonstrate why it is important to act on the Chinese Backdoor plans. Of course, India is not closing doors to global businesses. But the national security interests should be balanced with free market access.

It is important to preserve the sanctity of the spirit in which India had banned Chinese apps last year. Early action on the new shenanigans by the old players can help.