India steps up crackdown on Chinese phone makers

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

Oppo, which sells both the popular realme brand and its namesake brand, was charged this week by Indian regulators with tax evasion. That move follows recent raids, lawsuits, and large asset seizures against Xiaomi and Vivo. Together, the three Chinese tech groups control around 60 percent of the Indian smartphone market.

The move comes as New Delhi seeks to develop its domestic tech sector and reduce reliance on Chinese imports, and against a backdrop of icy relations between the two nuclear-armed neighbors over their disputed border.

While India insists the legal cases against Chinese companies are not politically motivated, the raids add to longstanding concerns about India’s climate for foreign investment.

Ashutosh Sharma, director of research at market research firm Forrester, said cross-border tension had intensified India’s scrutiny of Chinese-owned companies: “The level of mistrust between India and China is so high that I don’t think there is no chance that these companies are not closely watched by the government”.

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

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

Vivo was raided at 48 locations and $60 million worth of assets were seized last week. In response, the Chinese embassy in India complained that “the Indian side’s frequent investigations into Chinese companies” were disrupting its business operations. Vivo said he was cooperating with authorities.

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

“It was to be expected that Chinese companies would come under attack over time,” said Jabin T Jacob, an associate professor at Shiv Nadar University in Delhi who specializes in China. “The longer the border standoff continued, the more Chinese companies would be at risk.” It seemed unlikely that the accusations made by law enforcement authorities were baseless, Jacob added.

Along with South Korea’s Samsung, Chinese-owned device makers seized market share from once-prominent Indian phone brands, undermining local companies with newer technology at cheaper prices.

For the Indian government, the dominance of Chinese smartphone makers “is of great concern,” Sharma added. “That’s why the push is on ‘Make in India,'” referring to a government scheme to incentivize local manufacturing, part of New Delhi’s plan to reduce reliance on Chinese imports. Most of the Chinese-owned phone makers make devices in India and have invested heavily in factories.

India’s minister of state for information technology, Rajeev Chandrasekhar, has denied that India has discriminated against Chinese-owned companies.

“Our opinions about companies are not based on whether they are Chinese or not,” he told reporters, adding: “There are laws, there are rules that you have to follow, and there is no free pass for anyone, whether you are Chinese or anyone.

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

Trade hostilities intensified after deadly border clashes between Indian and Chinese soldiers broke out in the summer of 2020, with India banning hundreds of Chinese-owned apps, including Bytedance’s TikTok, citing national security concerns.

Underlining just how complex India-China trade relations are, Soumya Bhowmick, an associate fellow at the New Delhi-based Observer Research Foundation, found that after a slump in 2020, Chinese investments in Indian startups in 2021 reached “a 3-year maximum, and Chinese funding is pretty strong again in the startup ecosystem.” Alibaba and Tencent are among the biggest backers.

Meanwhile, India and China’s bilateral trade has grown in favor of China: 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 trade deficit. Electronics, chemicals and auto parts make up the bulk of Chinese imports.

However, strategic sectors remain off limits. New Delhi does not want telecommunications companies to use equipment made by China’s Huawei and this week expanded a regulatory framework to approve the use of hardware. Huawei is also subject to ongoing tax investigations, but said it is “fully compliant” with Indian law and is cooperating with authorities.

The freezing of Chinese companies outside of India’s telecoms networks has encouraged domestic players to invest, argued China expert Jacob, “because at least they are assured of profits without competition from elsewhere.”

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

Reliance Jio, the digital unit of the oil-to-telecoms conglomerate controlled by tycoon Mukesh Ambani, has powered the mobile telecoms industry with dirt cheap data since 2016. It launched its own smartphone late last year with the backing of Google and Goal.

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

Gucharan Das, an author and former CEO of Procter & Gamble India, said that “India tries to create a level playing field” in relation to foreign investors.

While he did not address the details of the cases involving Chinese companies, he cautioned that trade and politics must remain separate: “We must not mix politics with economics. An intelligent country does not harm its economy”.

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