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18 May 2015, Gateway House

China and Digital India

Less than two years ago most Indians would struggle to name a Chinese company. Fast forward to the present, Chinese smartphone company Xiaomi is on the tips of everyone’s tongue. Chinese internet giants Alibaba, Tencent and Xiaomi have emerged as investors and major players in India’s fast growing e-commerce and internet space. Their emergence marks a new and exciting area of cooperation and engagement between India and China

Marketing and Research Manager at Infosys China

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Xiaomi, now the fifth largest smartphone vendor in the world, has already sold more than 1 million units in India since it entered the market a year ago. It is such a craze that at its March launch event of its latest Mi 4 phone in New Delhi, it drew a crowd of thousands of young, Indian “fans” eager to be a part of the Xiaomi story.

What makes these Chinese companies so special? They are competitive, use unique marketing means, and understand technology. Xiaomi has quickly become the “hipster” alternative to existing competitors in India such as Samsung and Micromax It has generated a buzz on social media and has been selling selling phones through flash sales exclusively through Indian e-retailers. Xiaomi has less than 4% of the smartphone market share in India so far, and wants to grab a larger share.

Building on Prime Minister Modi’s Make in India push, Xiaomi now plans to set up a local manufacturing unit and service centres by the end of 2015. As a further endorsement of its serious intent in India, on 27 April the venerable corporate titan Ratan Tata announced an undisclosed personal investment into the company.

China’s two largest internet giants, Alibaba Holdings Group, an e-commerce company, and Tencent Holdings, an internet services and entertainment company, have noticed Xiaomi’s India success. They are already big investors in Silicon Valley and India’s young ecommerce space is alluring for them.

Alibaba, flush from a $25 billion IPO in New York in September last year—the world’s largest—announced it would invest $575 million into One97’s Paytm, an Indian mobile wallet, similar to Alibaba’s own very successful Alipay. It is currently in talks with Micromax, India’s largest smartphone maker, for a 25% stake – amounting to $1.25 billion- in Micromax.

Tencent has been making its own inroads into India’s growing mobile space through its flagship messaging app We Chat (Weixin in Chinese), hugely successful in China with 396 million users. While Whatsapp and Facebook messenger are still the dominant mobile messaging apps in India, in just under a year We Chat grew by 2,350% and now has 26% of India’s mobile messaging market.

What changed from the China of purecopy cat companies and technology? Service became the key. China’s first generation of internet companies—Tencent, Alibaba, and Baidu— are playing the game with unique, innovative consumer technologies.

For instance, Alibaba’s Alipay, introduced in 2004, allowed users without credit cards to shop online most Chinese didn’t then have credit cards. Today, Alibaba’s Alipay and Tencent’s Tenpay handle over $200 billion worth of transactions and make up 68% of mobile payment in China.

Alibaba is a leader in biometric identification integration into mobile payment systems and is pioneering a facial recognition software called ‘smile to pay’. All these services will be a part of the infrastructure that will create the world’s first e-banks—completely online banks where all transactions are conducted virtually—five of which are expected to become operational in 2015, two of which are backed by Tencent and Alibaba.

Alibaba is valued at $253 billion, Tencent at $135 billion and Baidu at $80 billion. They have become crucial players in the Chinese economy, driving the country towards a private capital and consumption driven economy.

Chinese company DJI is the word’s leading producer of civilian drones and Xiaomi is competing directly with Apple and Samsung by expanding from smartphones to smart bands, watches and other consumer products as it expands into the Internet of Things (IoT) space.
What’ next for China’s internet companies? A dive into non-commercial spheres: public utilities and governance. The big four – Alibaba, Tencent, Baidu and Xiaomi – are quickly, and with the blessings of Beijing, expanding into the public sector, a result of China’s “Internet Plus” initiative announced in March which aims to “integrate mobile Internet, cloud computing, big data and the Internet of Things”. Using public-private partnerships, they will address social issues such as healthcare, pollution, governance, taxes, and education. Tencent and Alibaba have already begun piloting healthcare and public utility services through their mobile apps.

2000 2013
India China India China
Internet penetration (% of population) 0.53% 1.78% 15.10% 45.80%
Mobile subscription (per 100 inhabitants) 0.34% 6.66% 70.78% 88.71%

Source: International Telecommunications Union (ITU)

The direction that China’s internet and ecommerce companies are heading dovetails perfectly with the Digital India campaign which aims to create “digital infrastructure, deliver services digitally and digital literacy”. Considering India and China had similar indicators of internet and mobile phone penetration, and that mobile technology is becoming the bridge in the digital divide, India can look to the Chinese model in order to achieve a similar growth trajectory (see Table.1).

In Shanghai, Prime Minister Narendra Modi, accompanied by Snapdeal CEO Kunal Bahl, met a delegation of 19 Chinese CEOs, including Lin Bin, president of Xiaomi, and Jack Ma, CEO of Alibaba Group Holdings. While Modi did have a 50 minute long “private chat” with Jack Ma, no formal agreements or MOUs was signed. It is important that Modi take these discussions forward in order to attract investment and technology to help solve the various public issues in India.

Sure, Chinese companies don’t have qualified successes as yet. But their technology and experience in experimenting with similar issues can be useful as India tries to progress in the development it so desperately needs.

This article has been updated the reflect the outcome of Prime Minister Modi’s meetings in Shanghai on 16 May, 2015

Dev Lewis is the Digital Media and Content Coordinator at Gateway House. His research focus is China and India-China relations

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