Not possible to fully block Chinese companies, say officials

“While some measures can be taken, several Chinese investments are quite substantive. It is not possible to fully block them. A worrisome factor is that these Chinese companies have linkages of some sort with the Chinese military,” one government official said on condition of anonymity.

Despite the uproar against the use of Chinese products amid the standoff on the border in eastern Ladakh and the government’s decision to ban several apps recently, government officials say it is not possible to fully decouple the trend due to the substantial investments by Chinese companies in India.

Intelligence assessments have also cautioned on the direct and indirect links many of these companies have with the People’s Liberation Army (PLA).

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“While some measures can be taken, several Chinese investments are quite substantive. It is not possible to fully block them. A worrisome factor is that these Chinese companies have linkages of some sort with the Chinese military,” one government official said on condition of anonymity.

India banned 59 Chinese apps on June 29 citing national security; another 47 were also put on the proscribed list later.

Significant new law

In June 2017, China passed a national intelligence law which gave Beijing powers over Chinese companies’ overseas investments as well. As per the Annual report of the U.S. Secretary of Defence to the Congress on the “Military and Security Developments involving the People’s Republic of China 2019”, this law requires Chinese companies, such as Huawei, ZTE, Tik Tok and others to support, provide assistance, and cooperate in China’s national intelligence work, wherever they operate.

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Article 7 of the law states, “Any organisation or citizen shall support, assist and cooperate with the state intelligence work in accordance with the law… The state protects individuals and organisations that support, assist and cooperate with national intelligence work.”

The law has direct security implications for all overseas Foreign Direct Investment (FDI) from China, a second official said.

Intelligence assessments have flagged some large Chinese companies with major presence in India having direct or indirect links with the PLA. This includes Xindia Steels Limited, China Electronics Technology Group Corporation (CETC), Huawei, Alibaba and Tencent.

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For instance, Xindia Steels Limited is considered one of the largest joint ventures (JV) between India and China and has commissioned a 0.8 mtpa iron ore pelletisation facility in Koppal district of Karnataka at a cost of over ₹250 crore. Its main investor is Xinxing Cathay International Group Co. Ltd. which, as per its website, is “reorganized, reconstructed and unhooked from previous production department and subordinate enterprises and institutions of the General Logistics Department of the PLA”.

Similarly, Huawei, which has generated global concern over its 5G services, was founded by Ren Zhengfei, a former deputy director of the PLA’s engineering corps in 1987. Huawei is quite popular in India and a government decision on its bid for 5G services in India is expected shortly.

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Multi-million funding

CETC had in 2018 announced a $46 million investment in a 200 MW photo-voltaic manufacturing facility in Andhra Pradesh. Officials pointed out that CETC is China’s leading military electronics manufacturer and also makes Hikvision CCTV cameras.

Several CETC research institutes and subsidiaries have been added to the U.S. government’s entity list, restricting exports to them on national security grounds, officials pointed out.

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CETC has been implicated by the U.S. Department of Justice in at least three cases of illegal exports and many CETC employees have also been convicted for military espionage, the second official stated.

CETC also provides technology used for human rights abuses in Xinjiang, where around one million are held in re-education camps, assessments noted.

Similarly, SAIC Motor Corporation Limited, the parent company of MG Motors, which sells MG Hector in India has also raised concerns. One of the subsidiaries of SAIC is Nanjing Automobile, which was previously a vehicle servicing unit of PLA, the official added.

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Another aspect that has raised red flags is Chinese investments in Indian technology start ups. The U.S.-China Economic and Security Review Commission, a U.S. congressional commission, said in its 2019 report, “The Chinese government’s military-civil fusion policy aims to spur innovation and economic growth through an array of policies and other government-supported mechanisms, including Venture Capital (VC) funds, while leveraging the fruits of civilian innovation for China’s defence sector.”

This raises a direct question mark on Chinese VC investments in India including big names like Alibaba and Tencent, the second official stated.

Leveraging AI

Sources said Alibaba along with Baidu and Tencent is developing Artificial Intelligence (AI) in a range of sub-domains for China under its military-civil fusion initiative. Alibaba and Tencent have raced against one another to invest in the Indian start-ups. Alibaba has made strategic investments in Paytm and its e-commerce arm Paytm Mall, Zomato, BigBasket, Snapdeal and logistics firm Xpressbees.

Tencent, too, has made a string of mega-investments in the Indian tech space, outpacing Alibaba, ranging from transport, food delivery, education and health, officials noted. Some notable investments are $400 million in Ola Cabs and $700 million in Flipkart in a deal that made Tencent the biggest Chinese investor in India.

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Tencent has also invested $175 million in Hike Messenger, $90 million in healthcare startup Practo followed by a series of investments in the learning app Byju in tranches of $55 million, $40 million and another $11.4 million.

In food delivery, Tencent joined Naspers in $1 billion funding for Swiggy. In online gaming space, it invested $100 million in Dream11 Fantasy and $115 million in the music streaming service, Gaana. Like ByteDance, Tencent also entered the news space investing $50 million in the aggregator app NewsDog.

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