Chinese invasion of Indian industry

Paran Balakrishnan | Updated on March 05, 2019

Chinese investments in electronics, home-appliance, automobile and tech sectors are rising like never before

It’s been a huge coup for Andhra Pradesh Chief Minister N Chandrababu Naidu. Chinese firm TCL, which is looking to expand its presence in the Indian market hugely, has selected Naidu’s showpiece electronics hub at Tirupati to make a ₹2,200-crore investment in two plants that will turn out mobile phones and television screens. TCL grew 120 per cent in the last year and has major plans for the Indian market.

Cut to Delhi where Taiwanese company KYMCO has just picked up an undisclosed stake in an ambitious electric two-wheeler start-up Twenty Two Motors. KYMCO brings with it a new, lightweight 5 kg battery that can be swapped quickly. Twenty Two is now looking at setting up charging infrastructure at 2-km intervals in six Indian cities where vehicle-owners can stop and change these lightweight batteries. Strictly speaking, KYMCO isn’t a Chinese company but the investment in India has come from its Hangzhou-based fund.

Says Parveen Kharb, Twenty Two’s co-founder: “India’s the fastest-growing market in the world for two-wheelers so they saw it as a very attractive place to be.”

Muscling their way

The Chinese have been muscling their way into the Indian business arena for some time. But now the scale of the invasion is changing. Already India’s largest trading partner, China’s now a fast-growing source of foreign direct investment. The Chinese are dominating industries like mobile phones and are about to grab the lion’s share of the television and home-appliances industries.

These are companies like Haier, TCL and Midea Group, which are Chinese but sell Toshiba-branded products, drawn by the fact India is the last major market where the population is still growing and vast swathes of consumers haven’t got basics like smartphones, fridges and kitchen ranges.

Haier is investing over ₹3,000 crore to build a new plant in Greater Noida that will make two million refrigerators and a million each of washing machines, air-conditioners and televisions. Midea, too, announced in November it’s investing some ₹1,300 crore to make air-conditioners in partnership with Carrier and a range of other household appliances. Earlier, in 2017, the Midea Group invested ₹800 crore in a new plant in Pune.

In considering these huge numbers, here’s something more to ponder: this may only be the first wave of the Chinese invasion of Indian industry.

Over the last one year, China’s top businesses have seen their well-laid plans being tossed for a six by Donald Trump’s maverick anti-trade moves. The jarring jolts have forced a number of them to relook their blueprints for the future.

Many are convinced even if the trade war ends, the Western world — both the US and Europe — will still be determined to put roadblocks in their way. Says Santosh Pai, Partner, Link Legal India Law Services which helps Chinese investors enter India’s market: “Companies sitting on the fence said we have to move quickly. As the trade war dragged on, Chinese companies which hadn’t considered India decided to start factories here.” Pai is also a member of CII’s core group on China.

The new Chinese interest in India is visible in places like Sri City, Andhra Pradesh, where two Chinese industrial products companies have recently signed to open plants. Last month, a 20-member Chinese delegation from electronics firms visited Sri City to check out the possibility of investing there. Also, the township is in contact with 10-15 major Chinese conglomerates that are showing interest in making large investments.

One player already entrenched in the Indian market is Xiaomi, which after slightly less than five years here, boasts revenues of ₹23,000 crore and is the leader in mobile phones with a 29 per cent market-share.

Xiaomi's revenue grew by around 150 per cent last year and it has also captured a large share of the television industry by slashing prices on what it says are quality products.

Now, Xiaomi has entered multiple new segments like powerbanks in which it’s again the market leader. Other newer products include a range of smart devices, including air-purifiers, soundbars for televisions and accessories that connect to smartphones like bluetooth headphones.

Overcoming reservations

Indians, in earlier years, had reservations about Chinese brands but that seems to have been overcome by the new wave of products from companies like Xiaomi, TCL and Haier. In the auto industry, though, it’s a different story. Companies like Shanghai-based SAIC Motor are using the MG (Morris Garage) badge to overcome customer reservations.

The company’s ads stress the MG name and its vintage British heritage. Similarly, the company that makes Volvo vehicles that sell in India is owned by Hangzhou-based Zhejiang Geely. Again, the company globally stresses its original Swedish parentage.

One automobile company that’s happy to come to India using its own distinctly Chinese brand name is bus company BYD Auto Industry, the world’s largest electric vehicle company in partnership with a local company. It has already won contracts in several cities for its electric buses. Crucially, but unsurprisingly, the three automobile companies have brought also a large clutch of Chinese automobile component companies.

Still, coming into India under cover of a Swedish or Japanese brand name, is a ploy that many Chinese companies are using successfully.

Take a look at Miniso, a Chinese retail chain that uses the name of a Japanese retailer that it bought some years ago. Miniso is in the fast-track when it comes to growth and has established its popularity with youngsters who are attracted by its products that offer a combination of good quality at affordable prices.

When it comes to manufacturing, the Chinese may still have reservations about inefficiencies of the Indian market. But tech companies have no such issues. It’s reckoned Chinese tech companies and funds have taken big bets and invested about $3 billion in India in 2018.

There are highly publicised investments like Alibaba’s several round of financing Paytm. Similarly, travel portal C-Trip took a key stake in MakeMyTrip.

More recently, Alicloud is building its second cloud-storage centre in India. At a different level, ShareChat has large investments from Xiaomi Singapore and Shunwei Capital. In fact, the Chinese have invested in almost every large Indian tech start-up, including big names like Zomato and Swiggy. And, in the last one year, 44 Chinese apps have made it to the top 100 most downloaded apps in the country.

China’s long been cast as the “factory of the world.” But it seems as Western markets’ appeal diminishes, India — despite the traditional friction between the neighbours — is looking like an ever-smarter investment option to Chinese players. Call it win-win.

Published on March 05, 2019

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