India has stepped up its crackdown on the Chinese companies that dominate its smartphone market in a series of court cases that have exacerbated trade tensions between Asia’s two largest nations.
Oppo, which sells both popular Realme and eponymous brands, was accused of tax evasion by Indian regulators this week. This move follows recent raids, lawsuits and sweeping asset seizures against Xiaomi and Vivo. Together, the three Chinese technology groups control around 60 percent of the Indian smartphone market.
The move comes as New Delhi seeks to build up its domestic tech sector and reduce its reliance on Chinese imports, amid frosty relations between the two nuclear-armed neighbors over their disputed border.
While India insists the lawsuits against Chinese companies are not politically motivated, the crackdowns add to long-standing concerns about India’s foreign investment climate.
Ashutosh Sharma, research director at market researcher Forrester, said the cross-border tensions have increased India’s scrutiny of Chinese-owned companies: “The level of distrust between India and China is such that I don’t think there’s any likelihood of the government not doing so with these companies.” closely observed.”
India’s Directorate of Revenue Intelligence (DRI), a financial enforcement agency, has accused Oppo, which co-owns Dongguan-based BBK Electronics with Vivo, of evading 43.9 billion rupees (around $556 million) worth of taxes to have.
The DRI claims Oppo got lower tariffs by misdeclaring imported items and not including royalties in their value. The tax authorities are asking Oppo to pay back the full amount. The company did not respond to requests for comment.
Vivo was raided in 48 locations last week and $60 million worth of assets were seized. In response, the Chinese embassy in India complained that “frequent investigations by the Indian side into Chinese companies” were disrupting their business operations. Vivo said it is cooperating with authorities.
Earlier this year, Indian financial authorities accused Xiaomi, the Chinese group that is the leading smartphone seller in India, of illegally transferring $725 million overseas. Xiaomi has denied any wrongdoing.
“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 standoff at the border lasts, the more Chinese companies would be at risk.” It seemed unlikely that the law enforcement agencies’ claims were unfounded, Jacob added.
Along with South Korea’s Samsung, Chinese-owned handset makers snatched market share from once-famous Indian phone brands and undercut local companies with newer technology at cheaper prices.
For the Indian government, the dominance of Chinese smartphone makers is “a big problem,” Sharma added. “That’s why they’re going ‘Make in India,'” refers to a government program to boost local manufacturing that is part of New Delhi’s plan to reduce dependence on Chinese imports. Most 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 discriminates against Chinese-owned companies.
“Our views of companies aren’t determined by whether they’re Chinese or not,” he told reporters, adding, “There are laws, there are rules you have to follow, and there’s no free pass for anyone, it doesn’t matter You it is Chinese or anyone.”
India has previously explicitly given Chinese companies the cold shoulder. It restricted direct investment from neighboring countries in April 2020 as the pandemic weakened Indian companies and made them vulnerable to takeovers.
Commercial hostilities escalated after deadly border clashes between Indian and Chinese soldiers in the summer of 2020, which saw India ban hundreds of Chinese apps, including Bytedance’s TikTok, citing national security concerns.
Soumya Bhowmick, associate fellow at the New Delhi-based Observer Research Foundation, underscored the complexities of India-China trade relations, noting that Chinese investment in Indian start-ups in 2021, after a slump in 2021, is “a Hit 3-year highs and Chinese funding is quite robust again in the startup ecosystem.” Alibaba and Tencent are among the top lenders.
Meanwhile, bilateral trade between India and China has been growing in China’s favor – India imported $27.7 billion worth of goods from China in the first three months of 2022 but exported only $4.9 billion to China, a record high trade deficit . Electronics, chemicals and auto parts make up the majority of Chinese imports.
However, strategic sectors remain taboo. New Delhi doesn’t want telecom companies to use equipment made by Chinese company Huawei and this week expanded a regulatory framework to allow the use of hardware. Huawei is also the subject of ongoing tax investigations but said it is “fully compliant” with Indian laws and is cooperating with authorities.
Freezing Chinese companies from India’s telecom networks has encouraged domestic players to invest, China scholar Jacob argued, “because at least they are assured of returns without competition from elsewhere.”
“In many ways, Indians are following the Chinese playbook,” added Jacob, in “developing their own national champions.”
Reliance Jio, the digital unit of the oil-to-telecoms conglomerate controlled by tycoon Mukesh Ambani, has been disrupting the mobile industry with dirt cheap data since 2016. She launched her own smartphone late last year with the support of Google and Meta.
While the device has yet to capture market share, “my prediction is that over the next two to three years that will change,” Forrester’s Sharma said, “we’re likely to see dominance of local players like Reliance.”
Gucharan Das, an author and former CEO of Procter & Gamble India, said that “India is trying to create a level playing field for foreign investors”.
Without getting into the specifics of Chinese companies’ cases, he warned against keeping trade and politics separate: “We shouldn’t mix politics with economics. An intelligent country does not harm its economy.”