India is escalating its attack on Chinese phone makers

India has continued its crackdown on Chinese companies that dominate its smartphone market, in a series of legal actions that have raised trade tensions between Asia’s two largest countries.

Oppo, which sells both the popular realme brand and its namesake brand, was accused by Indian regulators of tax evasion this week. The move follows recent raids, lawsuits and extensive asset seizures against Xiaomi and Vivo. Together, the three Chinese tech groups control about 60 percent of India’s smartphone market.

The move comes as New Delhi seeks to build up its domestic technology sector and reduce dependence on Chinese imports, and against a backdrop of frosty relations between the two nuclear-armed neighbors over their disputed border.

While India insists legal disputes against Chinese companies are not politically motivated, the raids add to long-standing concerns about India’s foreign investment climate.

Ashutosh Sharma, director of research at market research firm Forrester, said cross-border tensions have increased India’s scrutiny of Chinese-owned companies: “The level of mistrust is so high between India and China, I don’t think it’s likely that these companies are being closely monitored by the government.” ”

India’s Directorate of Revenue Intelligence (DRI), a financial enforcement agency, alleged that Oppo, which is jointly owned by Dongguan-based BBK Electronics with Vivo, evaded taxes worth Rs 43.9 billion (about $556 million).

DRI alleges that Oppo obtained lower duties by misdeclaring imported items and not including royalties and license fees in their value. The IRS is asking Oppo to refund the full amount. The company did not respond to a request for comment.

Vivo was raided at 48 locations and assets worth $60 million were seized last week. In response, the Chinese embassy in India complained that “frequent investigations by the Indian side of Chinese enterprises” were disrupting their operations. Vivo said it was cooperating with authorities.

Earlier this year, India’s financial authorities accused Xiaomi, the Chinese group that is India’s leading smartphone seller, of illegally sending $725 million abroad. Xiaomi has denied any wrongdoing.

Market share (%) bar chart showing Xiaomi breaking out into the lead in the Indian smartphone market - before losing ground

“It was to be expected that Chinese companies would be targeted over time,” said Jabin T Jacob, an associate professor at Shiv Nadar University in Delhi who specializes in China. “The longer the border standoff continues, the more risk Chinese companies will be exposed to.” It seemed unlikely that the allegations made by authorities were unfounded, Jacob added.

Along with South Korea’s Samsung, the Chinese-owned handset makers have taken market share from India’s once prominent phone brands, undercutting domestic companies with newer technology at lower prices.

For the Indian government, the dominance of Chinese smartphone makers “is a big concern,” Sharma added. “That’s why there is an insistence on ‘Make in India,'” referring to the government’s scheme to encourage local manufacturing, part of New Delhi’s plan to reduce dependence on Chinese imports. Most Chinese-owned phone makers manufacture devices in India and invest heavily in factories.

India’s Minister of State for Information Technology Rajeev Chandrasekhar has denied that India has discriminated against Chinese-owned companies.

“Our views on companies are not driven by whether they are Chinese or not Chinese,” he told reporters, adding: “There are laws, there are rules you have to follow, and there is no free pass for anyone, whether you are Chinese or whatever who else.”

India has explicitly eyed Chinese companies before. It restricted direct investment from neighboring countries in April 2020, when the pandemic weakened Indian corporations and made them vulnerable to takeovers.

Commercial hostilities escalated after deadly border clashes between Indian and Chinese troops erupted in the summer of 2020, with India banning hundreds of Chinese-owned apps, including Bytedance’s TikTok, citing national security concerns.

Underscoring just how complex the trade relationship between India and China is, Soumya Bhowmick, a fellow at the New Delhi-based Observer Research Foundation, found that after the 2020 decline, Chinese investment in Indian start-ups in 2011 hit “a three-year high, and Chinese funding is again quite strong in the start-up ecosystem.” Alibaba and Tencent are among the biggest sponsors.

Meanwhile, India-China bilateral trade rose in China’s favor – India imported $27.7 billion worth of goods from China in the first three months of 2022, but exported just $4.9 billion to China, a record high high trade deficit. Electronics, chemicals and auto parts make up the majority of China’s imports.

However, strategic sectors remain out of bounds. New Delhi does not want telcos to use equipment from China’s Huawei, and this week expanded the regulatory framework for approving the use of the hardware. Huawei is also subject to ongoing tax investigations, but has said it is “fully compliant” with Indian laws and is cooperating with authorities.

The freezing of Chinese companies from India’s telecom networks has encouraged domestic players to invest, claims Chinese scholar Jacob, “because they are at least assured of a return without competition from elsewhere.”

“In many ways, Indians are following the Chinese playbook,” Jacob added, “developing their own national champions.”

Reliance Jio, the digital arm of the oil-telecom conglomerate controlled by tycoon Mukesh Ambani, has been upending the mobile telecom industry with cheap data since 2016. At the end of last year, it launched its own smartphone with the support of Google and Meta.

While the device has yet to gain market share, “my prediction is that in the next two to three years this will change,” said Forrester’s Sharma, “we will probably see the dominance of local players like Reliance.”

Gucharan Das, author and former CEO of Procter & Gamble India, said “India is trying to level the playing field” with foreign investors.

Without referring to the specifics of cases related to Chinese companies, he warned that trade and politics should remain separate: “We should not mix politics with economics. A smart country does not harm its economy”.

Source link

Leave a Reply

Your email address will not be published. Required fields are marked *