App ban just a beginning. Economic Decoupling with China a necessity for India

India recently banned Chinese apps such as TikTok, BeautyPlus, WeChat and Club Factory because they were indulging in activities “which is prejudicial to sovereignty and integrity of India, defence of India, the security of the state and public order”. It is a known fact in the strategic circles that China is using a strategy called MCF or Military Civilian Fusion where it uses its involvement in civilian domains for military and strategic purpose. Chinese app TikTok which has been banned by India is under security review in United States because of the same reason. There have been reports that it collects sensitive data from its US-based users. US security establishment has also red-flagged TikTok for its propaganda activities. This is something which Indian citizens have also flagged to the government through various means. TikTok users were found spreading Chinese propaganda on key political issues such as CAA, NRC and revocation of article 370 in Kashmir. Tencent, the company that owns PUBG, along with Baidu and Alibaba are part of the digital silk road. These companies have a mandate from the Chinese government to share data with them.

In India, there was a long-standing recognition of the threat from Chinese apps but the Galwan Valley incident provided the much-needed trigger to the government to ban them. The violent clashes along the LAC in eastern Ladakh have now turned into a full-fledged economic decoupling between India and China. Even China has recognised the trend towards this through a piece in the CPC mouthpiece, Global Times. India’s willingness to use economic means to impose strategic costs on its enemies has increased in the recent times. India was swift to punish Malaysia with a ban on palm oil import after Malaysia took an anti-India stance on the Kashmir issue. India also imposed severe economic sanctions on Pakistan by increasing custom duty on imports from Pakistan after the Pulwama attack. In the case of China, India has taken a series of important steps to impose a serious economic cost on China. These measures include reworking of tenders by various Indian ministries to actively exclude Chinese companies, strict check on Chinese imports at the customs and a ban on 59 Chinese apps. India is also mulling its decision to allow Chinese companies like ZTE and Huawei from participating in 5G upgrade. It is said that China wields a disproportionate influence over India’s Information Technology ecosystem. China’s total investment in top 50 Indian unicorn is quite small and totals to only US$ 4 billion. Still through this small investment, China has penetrated Indian society, Indian economy and Indian IT ecosystem.

One can’t deny that India’s attitude towards China has changed significantly as a result of the Galwan Valley incident. However, the trigger for India’s changed behaviour towards China has deep-rooted reasons. These reasons involve China’s tacit support to Pakistan in fomenting terror in India, China’s attempt to claim India’s territory as its own, China’s stand on the Kashmir issue. Thus, from a market which was readily available to Chinese manufacturing and IT investments, India has now become a market which is erecting new barriers every day against Chinese onslaught. Part of the reason for India’s new-found resolve in blocking access to Chinese business is India’s own confidence and Prime Minister Modi’s vision of an Atmanirbhar Bharat. As part of India’s mission to become self-reliant in the manufacturing sector, India has also identified an opportunity in the IT sector.

India is a huge market for digital companies but its own companies play a minuscule role here. Whereas China protects its own digital market from any non-Chinese brand but it has continued to penetrate the large Indian market. The risk of allowing China in capturing Indian digital market is not limited to financial loss to Indian players alone but it is also a serious security challenge as well. China’s dominance in India’s digital market is not limited to only investments and apps but Chinese players fulfil a number of important security needs as well. A Chinese Company named Hikvision controls about 35% of India’s CCTV market. Interestingly, it has set up a separate company known as Prama Hikvision Private Limited to benefit from the concessions given by Indian government under its Make in India initiative. This company had also won a tender from the Delhi government to install 1.5 lakh CCTV cameras in the national capital in the year 2018. China’s penetration in key areas such as security shows that Indian players are losing out a lot of market to Chinese counterparts. In view of the fact that Chinese state does a lot of handholding for its business community, Indian business community also needs the state to throw its strategic weight behind them. During the fieldwork for my doctoral project, I spoke to a lot of Indian businessmen regarding the Chinese threat where they confessed to a step motherly treatment by the Indian state and an active discrimination and preference for Chinese products that they faced. This threat was faced the most by small and medium sector enterprises which the current government is focusing on to realise its vision of a self-reliant India. Thus, it is only obvious that going forward the current government will take every step necessary to protect the interest of the Indian business community.

In order to truly understand the magnitude of loss caused to China due to app ban we need to look at India a “market for the future” for the Chinese apps. It is true that India contributes just a small fraction of total revenues for the Chinese apps including TikTok but that’s true for almost all the other foreign apps including WhatsApp and Facebook. India is the largest market for Facebook in terms of monthly active users which are 280 million- 90 million more than the second largest market of US. But India’s share in Facebook’s total revenue is very small. While in US, digital ad spend business reached $129.3 billion in 2019, in India it was just around $3.5 billion. Despite this Facebook continues to invest in Indian market because it is an opportunity for the future. Facebook has bought a 9% stake in Jio in 2020 for $5.7 billion and plans to monetize this user base by integrating Facebook with Jiomart.

Having a large user base is more important than having current revenue stream in the app business. It is for this particular reason that China is itself admitting that loss due to app ban will be huge. ByteDance, the company which owns TikTok is alone set to lose around $6 Billion due to TikTok ban in India. TikTok was going to launch its IPO soon and now with 30% of its market gone due to ban by India, it’s valuation at the stock market will greatly suffer. Indian startup ecosystem is well prepared to deal with the vacuum left by Chinese apps. Indian app makers are elated at the prospect of capturing their own market and are very happy that government is finally watching their back.

Bio: Dr. Monica Verma is a PhD in International Relations from South Asian University. Her research focuses on South Asia, Political Economy and Indian Politics. She tweets at: @trulymonica.

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