China's technology companies have been great beneficiaries of protectionism, while largely avoiding the flipside of the equation for much of the past decade. India is changing that.
Much has been made of a ban on Huawei Technologies Inc. equipment in foreign markets and more recent curbs on access to technology. President Donald Trump's administration has also escalated from speed bumps to laying out road spikes against Beijing in specific sectors, such as artificial intelligence.
Yet Huawei is one of only a handful of Chinese companies truly limited in selling their wares overseas, and broadly speaking, most have unfettered access to foreign markets. Alibaba Group Holding Ltd. has been welcomed by the Americans to set up shop while Tencent Holdings Ltd. is free to offer WeChat in the U.S. without constraint.
Ironically, Tencent's games portfolio faces fewer restrictions abroad than at home. Remember also that Alibaba, Baidu Inc. and dozens of their compatriots can't even be foreign owned — they are listed in the U.S. via variable-interest entities that route through tax havens.
By comparison, America's largest companies face either outright bans or severe curbs on doing business in China. Facebook Inc., Twitter Inc. and Alphabet Inc.'s Google search engine are all but banned. Microsoft Corp. is able to tread a fine line with its LinkedIn and Github services, both of which were acquired, but its internet properties such as the Bing search platform are otherwise restricted or blocked. Apple Inc., meanwhile, has had to play an awkward game of acquiescence and compliance as it buys and sells hardware in China, while submitting to censorship on its internet services, such as the App Store.
Then comes a clash with Chinese military forces that left at least 20 Indian soldiers dead and played into growing nationalism in the South Asian nation. This week, Prime Minister Nahendra Modi's government announced a ban on dozens of Chinese apps, including ByteDance Inc.'s TikTok and the Alibaba-backed UC Browser.
It's possible that the national security justification — it's feared that some of these apps could be used to conduct a cyberattack — is a ruse. But that doesn't matter. Mounting tension between the world's largest nation, where growth is slowing, and the second-largest, which is on the cusp of a consumer-technology boom, was bound to force New Delhi's hand at some point. The deaths in the Himalaya marked the kind of tragedy that Modi can't ignore.
And that's bad news for China's internet giants. Protectionism — under the guise of national security and censorship — is what kept Google, Facebook and Twitter from getting a foothold in China, leaving a fertile market to the likes of Baidu, Alibaba and Tencent. To their credit, these local heroes made good by building innovative products that now lead the world in areas such as e-commerce and payments. Well-funded American giants with free access could have stamped them out when they were seedlings.
With the world's largest market at their disposal, foreign expansion was something these Chinese tech companies largely ignored because there were just too many easy pickings domestically to waste time thinking outside their borders. But now, companies like Tencent and Alibaba are almost tapped out in terms of new users at home and need to look overseas, engaging in acquisitions and investments to make up for lost time. Relatively fresh faces like handset maker Xiaomi Inc. and ByteDance have known since early on that foreign markets like India will be important.
They're about to face the same kind of protectionism that shielded them from competition, as nations that China should view as markets or sources of raw materials push back against Beijing's increasing foreign policy and military assertiveness. India could be both a market for Chinese goods and services — as Xiaomi, Alibaba, Tencent and ByteDance are discovering — and a replacement for the cheap labor that helped build China into a powerhouse. Though India will lose if it can't ship products to China, it arguably has more growth ahead domestically.
For Chinese companies, after India there may be no next big thing, just a growing list of increasingly wary countries. That's not a great position to be in if Beijing wants its domestic technology champions to become global players.
Tim Culpan is a Bloomberg Opinion columnist covering technology. He previously covered technology for Bloomberg News.
Disclaimer: This opinion first appeared on Bloomberg, and is published by special syndication arrangement.