Chinese investors have developed an affinity for India’s online travel agencies.

On April 26, China’s CTrip bought a 42.5% stake in India’s largest online travel firm MakeMyTrip from South Africa’s Naspers in a share-swap deal. Along with an earlier investment, CTrip now owns about half of MakeMyTrip’s shares.

This is among the biggest moves by a Chinese investor in India’s online travel agencies space and comes at a time when India’s online travel segment is poised to touch $48 billion (Rs 3.3 lakh crore) by 2020, compared with less than $10 billion in 2014.

Besides MakeMyTrip, two other leading players in the segment, India’s biggest budget hotels chains, OYO, and its rival Treebo, are already backed by Chinese investors. Even smaller companies in the segment, such as the Gurugram-based HappyEasyGo, have raised funds from Chinese investors.

But why do Chinese investors want to pump in funds into Indian online travel agencies, especially when they run the risk of creating formidable Indian rivals on a global scale?

“Folks who have seen growth in China know that India is the next big leap and there will be significant growth for many years to come,” said Vidhya Shankar Satyamurthi, who heads strategy, policy and corporate development at the computer software firm SecurelyShare. “...They want to replicate growth stories here and want to bet early.”

The India opportunity

CTrip is trying to cash in on the upward momentum in India’s online travel market, analysts say.

When MakeMyTrip set up operations in 2000 – back then, it was focussed on just the US-India expat travel route – Indians were still new to the internet and hesitant to transact online. But the market has evolved since.

At the end of January 2017, MakeMyTrip completed a merger with the Naspers-owned ibibo Group. Together, the two have won in terms of transactional volume and ticket sizes over the last year.

“These investors understand the growing appetite of Indian middle class to travel, people becoming more comfortable using the internet not only for browsing but for transactions as well,” Yugal Joshi, vice president of Texas-based consultancy Everest Group, said. “Moreover, the India OTA market is becoming consolidated with very few players dominating. This helps investors to scale.”

Too much money, too few takers

This isn’t CTrip’s first brush with MakeMyTrip – it invested $180 million in January 2016 – and neither is it the only Chinese investor backing MakeMyTrip. Hong Kong’s Ward Ferry also features in the list of investors.

Other online travel agency players – especially in the hotel segment – in India have also drawn Chinese interest.

For instance, Ward Ferry owns a 6% share in Treebo, data from startup data platform Tracxn shows. Digital payments firm Paytm, often touted as a “Chinese company” due to its Alibaba connection, is also making inroads in flight and hotel bookings in India.

And nearly 5% of OYO’s shares are held by Chinese entities, as per Tracxn.

Data: KalaGato
Data: KalaGato
Data: KalaGato
Data: KalaGato

The India opportunity is especially pertinent for Chinese investors given that their capital has little acceptance elsewhere.

Around the world, companies are shying away from letting Chinese capital due to data security concerns. Last year, Chinese foreign direct into the US, Canada, and Europe plummeted to $30 billion – a significant drop from $111 billion invested in 2017 and the lowest in six years, as per research from law firm Baker McKenzie and research provider Rhodium Group.

“Chinese money isn’t welcome in America, the other hotbed for start-ups, and neither in Europe,” Everest Group’s Joshi said. “Therefore, India becomes an important market and they must invest here.”

This growing relationship with Indian online travel agency players is symbiotic with Chinese investors also looking to make their mark in the world’s second-most populous country.

“They can leverage their own learning of operating in a somewhat similar market to theirs and benefit their investees,” said Harish HV, an independent consultant tracking tech startups. “This will also enable them to create a global footprint for their businesses which they can then take to other markets. Finally this serves to keep some of their global competitors away by being here first.”

CTrip is looking to increase its revenues from international markets from 2% to 20% over the next five years. Even Airbnb has taken a cue from these Chinese players. At the start of April, the San Francisco-headquartered company invested in OYO, likely to piggyback on its successful run in India and China.

This article first appeared on Quartz.