CHINESE COMPANIES

Context

Key points

•  After experiencing income tax searches, exclusion from 5G telecom trials and increasing restrictions on research collaborations.
• Other than Huawei, the sector peers ZTE, Vivo, Xiaomi and Oppo had their offices searched in the past few months.
• This is believed to be part of a series of government measures aimed at checking Chinese corporate influence in the country.

Image source: Globelinfoblogs

Allegations 

Xiaomi 

• The Enforcement Directorate (ED) Seized ₹5,551.27 crores from Xiaomi's India unit.
• It alleged that the company had remitted foreign currency equivalent to the mentioned amount to three foreign-based entities, including one Xiaomi group entity, under the guise of royalty.
• The company was alleged to have not availed any service from either of the entities and that the remittances ultimately benefited its group entities.

Vivo

• In July, the ED carried out searches at 48 Vivo locations in the country.
• The ED was acting on an FIR by the Ministry of Corporate Affairs that the Grand Prospect International Communication Pvt Ltd (GPICPL), one of Vivo's associated companies had used forged identification documents and falsified addresses at the time of incorporation.
• As per the ED, the company's registered address was that of a government building and the house of a senior bureaucrat.
• This pointed to the presence of a shell company carved to sidestep taxation.
• The companies were said to have transferred a huge amount of funds to Vivo India.

Oppo

• Oppo was issued a show-cause notice after the Directorate of Revenue Intelligence (DRI) detected customs duty evasion of ₹4, 389 crores.
• The DRI's searches placed evidence that alleged Oppo had wilfully declared incorrect descriptions of certain imported items for manufacturing their mobile phones in India.
• This resulted in the Company wrongfully availing duty exemption benefits of ₹2,981 crores.

China's cyber-image is under scrutiny

• Across the world, Chinese companies have been disfavoured for providing critical infrastructure for essential telecommunication services.
• The list includes the U.S., U.K., Australia and New Zealand among other countries.
• This is even though Huawei and other Chinese companies offer significantly lower prices than domestic competitors.

• A crucial part of this campaign is the telecom network and fibre optic communications infrastructure provided by Chinese companies like China Telecom, Huawei and ZTE."
• In a recent example of this concern, Reuters reported in July that the Biden administration is investigating Huawei over concerns that cell towers in the country were fitted with gear that could capture sensitive information from military bases and missile silos, which could be transmitted to China.

Cyber-attacks

Recorded Future

• North American cybersecurity firm Recorded Future stated that the October 2020 Mumbai blackout was carried out by China-linked hacker group "RedEcho" as a follow-up act to the Galwan valley clash between the armies of the two countries.
• Not just sovereigns, companies such as Vodafone and Microsoft have spoken about such attacks by "state-sponsored" actors.

Cyfirma 

• Another cyber-intelligence firm Cyfirma reported that Chinese state-backed groups had targeted the IT systems of Indian vaccine makers Bharat Biotech and Serum Insitute of India in March last year.
• The two companies were believed to be prominent participants in India's ambition for fostering vaccine diplomacy.

Potential Exit

• What has helped the growth of Chinese telecom companies in India is its price competitiveness in a price-sensitive market.
• According to Counterpoint Research, Chinese players have a 75- 80 per cent share in the sub-$150 segment contributing to 31 per cent of the overall smartphone market.
• There has emerged an urgency to find a perfect competitive replacement for Chinese products.
• Not just India but several other countries are so dependent on Chinese products.
• This is primarily because China has mainly monopolised the lower ends of the global value chains.

Conclusion 

• The latter refers to the basic components required for a product, such as a pen cap for a pen.
• Make in India does possess the bandwidth to provide an alternative but it would be a plan for many years.
• An outright ban on Chinese smartphone players is unlikely.
• As for an overall replacement, it stated, "They need a strong portfolio, distribution and after-sales services mix, which is currently missing from Indian brands.
• Notwithstanding the recent regulatory scrutiny and the presence of alternate markets in Bangladesh, Thailand and Vietnam.
• It is unlikely that Chinese firms would want to exit the Indian market so soon.