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China-affiliated companies and investors are seeking a comeback in India


China-affiliated tech companies are finding ways to break back into India, giving investors new hope that their companies can overcome trade tensions between the countries and fuel new growth.

Online fashion company Shein has pursued an alternative deal structure to relaunch in India in partnership with Reliance Industries, the country’s largest publicly traded company. It was one of dozens of Chinese apps banned in 2020 over alleged national security concerns following deadly clashes on India’s border with China.

Battlefields Mobile Indiaa shooting game published by Tencent-backed South Korean company Krafton relaunched on app stores last week, a year after it was reportedly banned over fears that Indian user data was being transferred to servers in China.

Without mentioning China, Indian minister Rajeev Chandrasekhar said so last month BGMI would be available for a three-month trial after concerns about “server locations (and) data security” have been addressed.

Shein’s partnership with Reliance – recently approved by the government – is a licensing agreement under which the Chinese group will receive a percentage of Reliance’s profits from sales of its clothing rather than investing directly in India.

“This could be a turning point for future such structures,” said Karam Daulet-Singh, managing partner of foreign investment-focused law firm Touchstone Partners.

“You need someone of Reliance’s stature and position in the Indian ecosystem to do something so high-profile, and don’t try to keep it under the radar.”

Shein also made its Singapore arm its de facto holding company last year, a strategy known as “Singapore washing” employed by Chinese investors seeking to take corporate interests in countries prone to mainland investment.

BGMIThe company’s return could be significant for a gambling industry hit by a series of abrupt bans on popular games over alleged ties to China. Krafton lifted the ban last month BGMIwhich had 100 million downloads last year had seen growth in its mobile business, but it had now taken “several measures to ensure compliance with all applicable regulations”.

“This is something that (other gaming companies) can certainly take as a precedent,” said Ranjana Adhikari, a technology partner at law firm IndusLaw.

The Shein and BGMI developments follow no official policy change in New Delhi, and severe restrictions on investment from China remain. Regulations introduced in 2020 stipulated that any deal where the “ultimate owner” was Chinese or based in China required New Delhi’s approval.

Investors expect this to continue, shutting out all but the most determined companies. However, deals like Shein’s partnership with Reliance, which don’t involve foreign direct investment, don’t require the same approval.

The 2020 rules have led to a sharp slowdown in deals. Investors in China participated in 53 Indian technology financing rounds worth $2.8 billion last year, compared to 72 worth $3.1 billion in 2019, according to figures from data provider Tracxn.

India’s finance minister, Nirmala Sitharaman, said in March that 54 investment proposals from China and Hong Kong were pending government approval.

In contrast, the number of Indian venture capital deals involving a Singaporean entity increased from 68 in 2019 before the rule change to 205 in 2022, according to Refinitiv data.

Some lawyers and investors argue that channeling investments through other countries, such as Singapore, has helped, despite restrictions on beneficial ownership. A number of Indian companies also have holding companies in Singapore.

“There’s nothing illegal about it, but now that a number of deals have been successful, there’s a sense that having the investor entity in Singapore rather than China could help with the approval process,” said a Singapore-based lawyer representing Chinese clients. advises on investments in India.

Shunwei Capital — founded by the founder of Chinese smartphone maker Xiaomi, Lei Jun — invested last year in Indian market automation platform WebEngage and dairy brand Country Delight through its Singaporean subsidiary, SWC Global, founded in 2020. Shunwei declined to comment.

An Indian official disputed the point that attitudes had been softened, but said New Delhi was open to proposals. “There was never a blanket ban on anything Chinese,” the official said. “Wherever there is a cause that seems to be good for the country, we do what is good for the country.”

However, inconvenient delays and strict data storage requirements still deter many potential investors.

A Hong Kong-based venture capitalist who invests in early-stage companies in India said that while “there has always been interest . . . India is one of the most bureaucratic countries in the world.”

“If investors see that it could take more than a year to get approval, they just walk away,” the investor said.

Rajeev Suri, a managing partner at Mumbai-based Orios Venture Partners, said a slowdown in technology funding over the past year meant India could no longer be so choosy.

“If you go to the government today and say, ‘Hey, I want to do a (deal)’, they probably won’t close the door on you,” he said.

But he added that this has not yet translated into more activity. ‘If there is no certainty… . . money will not start flowing back,” he said. “Not too many players can play the regulatory game that Reliance can play.”

The director of a Chinese venture capital fund with a Singapore entity said: “I got the sense that India painfully realized the importance of mainland investment to the growth of its startup industry after technology fundraising fell off a cliff in 2022.

“Turning off the taps completely did not work out well.”

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