What does the quest by Chinese companies for "top-to-bottom" domination of digital platforms mean for India?

This is the eighth part in the series The China Chronicles.

Read the first seven parts here.


Ant Financial's (the fintech arm of the Alibaba Group) effort to acquire MoneyGram, one of the world's leading money transfer companies, reflects China's naked ambition to control technology ecosystems of the 21st century.

The range of products and services that Chinese behemoths have eyed (and in many cases, acquired) is astonishing. At the time of writing, this author found that Tencent, the Shenzhen-based messaging platform has bought a five percent stake in Tesla, leading many to speculate its plans for the self-driving car market. Last year, Chinese appliance manufacturer Midea announced its takeover of Kuka, a German robotics company that Europe digital commissioner saw as "important for the digital future of European industry." Brazil's most successful "online-discount" company Peixe Urbano was bought by Chinese search engine giant Baidu as early as 2014. And finally in 2015, India's own Paytm ceded a 40 percent stake in Alibaba, China's biggest e-commerce company.

These instances — a fraction of the global mergers and acquisitions (M&A) deals that Chinese companies have driven in the last five years — reveal a trend of strategic acquisition of technologies. They are attempts at vertical convergence and control of digital platforms. For example, by owning or being the dominant stakeholder in an e-commerce company (Alibaba), a payment gateway (AliPay/Paytm) and a money transfer platform (MoneyGram), Ant Financial aims to create an interoperable system that starts with a consumer receiving money in her e-wallet, and ends with her spending it on products anywhere in the world. Its investment in a leading robotics company (Kuka) suggests Midea is betting on an intelligent, Internet of Things driven environment, where "traditional" appliances are seamlessly connected by sensors responding to the needs of their owners. If consumer needs can be gauged without human input or intervention, they can be also be addressed by robots who automate daily tasks like cleaning or cooking. These M&As were likely given green signal by the political leadership in Beijing, given the close ties between China's internet giants and the Communist Party.

What does the quest by Chinese companies for "top-to-bottom" domination of digital platforms mean for India? In an extreme scenario, Chinese applications and devices could not only become the custodians of Indian users' data, but also the gatekeepers of security while shaping consumer behaviour. To an extent, this is already the case with four of the top Chinese smartphone models (by market share) in India. The pervasive influence of Chinese technologies is an eventuality of enormous geopolitical significance for New Delhi. Should China gain levers over digital markets, it will mark the second phase of the economic relationship between both countries, heralding a shift from a demand-driven market for Chinese products to being necessity-driven. Needless to say, this scenario will curtail the strategic and military options of India's foreign policy planners.

The pervasive influence of Chinese technologies is an eventuality of enormous geopolitical significance for New Delhi.

A second and more probable outcome is that New Delhi and Beijing will collaborate to tailor products and services for the Indian market. Current developments reflect the desire on both sides to pursue such efforts. The fourth India-China Strategic Economic Dialogue in October 2016, sought to strengthen cooperation "to take advantage of digitisation in all areas of economy; […] jointly promote manufacturing technology, [promote] cooperation through the partnership of enterprises between the two countries in the area of high performance computing, smart cities [etc.]."

The communique also suggests: "[T]he complementary strengths of India and China in ICT sector, specially computer hardware of China and computer software of India should be leveraged for competitive and economic advantage."

The goal of producing Indian technological solutions for Chinese platforms is many years away, but there is no doubt that Beijing will have to work with Delhi if it wants to further service India's platform economy. Security testing of Chinese telecom equipment as well as applications, for instance, will be a sticking point for both sides to resolve at an early stage of talks.

No matter which scenario is realised, technology cooperation will cast away closely held beliefs that currently dictate Delhi's approach with China.

  • The political relationship will be subsumed by economic factors, prompting Indian regulators to work with their Chinese counterparts to secure the digital economy. As a result, big-ticket, intractable issues like NSG membership or UN Security Council reform may be pushed to the back burner. That is not say such issues will matter less to India's foreign policy moorings, but their potential to act as a spoiler in India-China ties may consequently diminish.
  • The Chinese private sector will emerge as an influential factor in bilateral ties. While it is true Chinese businesses are connected to the political establishment in Beijing, they are also driven by bottom lines and market shares. As their India operations expand, Chinese companies will exert considerable influence over the CPC, and perhaps even steer the trajectory of the relationship.
  • India and China will likely work together to develop technical standards and protocols for the interoperability of devices and digital platforms in Asia. Asian digital ecosystems are currently fragmented, given that no one company has a monopoly over its infrastructure. As Chinese devices and applications continue to penetrate the Indian market, they will also have to design technologies that address security concerns indigenous to India: vulnerabilities in cheap, handheld devices, the linking of mobile phones to India’s unique identity database, encryption standards for communication platforms, etc. Technology-based cooperation may also spillover into regional cooperation for standard-setting, given that digital economies in southeast and central Asia are booming.
  • Beyond technology standards, New Delhi and Beijing may also be prompted to coordinate national policies on data protection (or at a minimum, compare notes on how best to harmonise them) given the inextricable linkages between Chinese platforms and data from India contained in them. Policy questions addressed may include: What data should remain within Indian borders? What safeguards will apply to data of Indian citizens stored abroad? How can both sides create information sharing channels between Indian and Chinese law enforcement agencies to tackle cyber crimes? Policy coordination is an inherently political exercise, which will require high-level representation, making up for its deficit in current bilateral discussions.
  • Wary of expanding Chinese influence, American and European technology manufacturers and platforms will court the Indian market, offering New Delhi a bargaining chip that could be used for political ends. Currently, Chinese apps do not compete with their western counterparts in many markets, but that is set to change as they turn towards developing English language platforms.

Efforts by Chinese companies to control digital ecosystems in Asia and beyond must wake Indian policymakers up to their worrying consequences.

As digital platforms converge, it would be ill-advised if India ceded space to its eastern neighbour to determine the rules of governance in cyberspace. At the same time, economic and business imperatives driving Chinese companies to India offer an opportunity for New Delhi to bring China to the negotiating table. While China is able to pump money and resources into developing new technologies, their utility and interoperability will be determined by consumers in emerging markets like India. Regulatory norms or technology standards designed to exclude Chinese players can seriously hurt Beijing's economic prospects, which is a card India should not hesitate to deploy. The negotiation process that follows may ultimately break the political stalemate that the relationship is currently hostage to.

The views expressed above belong to the author(s).

Comments

2 Comments on "Strategic technology might disrupt India-China status quo"

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anand
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yes. the author has brought a very new perspective to deal with the chinese!As clinton said during his election campaign, “It’s economy, stupid!”

Ram Lanka
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Very practical view and a refreshing perspective. We need more such insightful articles on Indo China relations.

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