India's true intentions have been exposed, and after using unconventional means to suppress Chinese mobile phones, Chinese | mobile phones | intentions

After suppressing Chinese mobile phone companies through various means for a long time, the Indian government has finally come up with a "final solution" recently, which has also revealed the true intentions of the Indian government.

According to Indian media reports, the Indian Ministry of Electronics and Information Technology recently convened a meeting with Chinese smartphone manufacturers such as Xiaomi, OPPO, Realme, and vivo. At the meeting, the Indian government put forward a series of requirements for these enterprises: for example, companies are open to Indian capital investment; Core executives must be held by Indian nationals; Manufacturing and assembling mobile phones by Indian companies; Train Indian distributors to expand exports.

Shajun, co-founder of Yingke Law Firm's India Investment Service Center, told First Financial reporters that from a corporate perspective, these new requirements have caused significant changes in the cost structure and even governance structure of the company, exceeding the company's original expectations and putting a lot of pressure.

The conditions imposed by the Indian government require these Chinese funded enterprises to accelerate their Indianization and ultimately become Indian funded enterprises. At the same time, India's appetite is not limited to the domestic market, and it also hopes that Chinese companies can help India improve its position in the global industrial and supply chains.

On April 26th, people gathered at a market in New Delhi, India. Xinhua News Agency

Chen Jing, Vice President of the Technology and Strategy Society, told First Financial reporters that India hopes to fully replicate the success of China's mobile phone industry to India. There is a complete and meticulous plan for this, and some results have been achieved under a systematic approach.

He further stated that individual companies are unable to cope with the systematic suppression of the Indian government, and the worst-case scenario is to be broken down individually. So it is necessary for Chinese enterprises to unite and engage in overall negotiations with the support of the country, in order to improve their response level.

Xiaomi and others have been farming in India for many years

It is worth noting that on June 9th, just before and after the meeting, the Central Enforcement Agency of India issued a notice to Xiaomi Technology India Branch and three banks, accusing Xiaomi of violating the Foreign Exchange Management Law and "illegally transferring funds to foreign entities.". This institution froze Xiaomi's 55.51 billion rupees of funds last year, and the notice means that this fund may be confiscated.

At the moment when the Indian government came up with a "solution" and issued the aforementioned notice, it seemed quite shocking to the outside world.

55.51 billion rupees is not a small amount for Xiaomi. According to calculations by local Indian media, Xiaomi's India subsidiary has accumulated a profit of 9.46 billion rupees over the past 9 years in India. If we only look at it from the perspective of profit and benefits, Xiaomi's success in India is almost in vain.

According to Xiaomi Group's 2022 full year performance announcement released in March this year, the adjusted net profit was RMB 8.5 billion, with 55.51 billion rupees accounting for more than half of the group's full year profit.

Being fined due to tax issues is a common problem faced by Chinese mobile phone companies in India. In addition to leading brand companies, a Chinese mobile phone accessory company in India previously told First Financial reporters that due to the investigation of upstream and downstream Chinese companies, they have also been subjected to tax investigations and are tired of responding.

As the world's most populous country, India's market potential is quite tempting for any multinational enterprise. Chinese mobile phone companies gradually entered the Indian market around 2014. In addition to their advantage in population base, another major attraction was that Modi took office that year and proposed the slogan "Made in India", hoping to vigorously develop India's manufacturing industry.

Subsequently, Chinese mobile phone brands represented by Xiaomi made their debut in India and gradually grew into well-known local brands with their high cost-effectiveness. According to market research data from India in 2022, at least two out of every three smartphones in India are Chinese brands, and Chinese smartphones have an absolute advantage in the Indian market.

However, the good days of Chinese mobile phones in India are not long. In 2020, as the relationship between China and India became increasingly tense, India was the first to take action on Chinese mobile applications in June of that year, banning the first batch of 59 mobile applications, and continuously adding more, with a cumulative quantity exceeding 200.

Among them, there are TikTok, WeChat and other software representing the Chinese mobile software industry, as well as supporting software for Chinese mobile phones such as "Xiaomi Community" and "Xiaomi Video Phone".

After a brief silence, India ultimately shifted its focus to mobile hardware. On the evening of December 21, 2021, law enforcement officers from the Tax Bureau of the Indian Ministry of Finance took a unified action and launched tax investigations on more than 20 Chinese mobile phone companies across India.

From the capital city of Delhi, to the economic center of Mumbai, and then to the Indian technology center of Bangalore, everyone is spared. Such a consistent and large-scale action, even Indian media can easily summarize that it is a "encirclement" of Chinese mobile phone suppliers.

Xiaomi and several Chinese mobile phone companies are embroiled in the storm center. Xiaomi's share of mobile phones in the Indian market began to decline as a result. In 2020, its shipment volume still accounted for 26% of the Indian market; According to data released by Counterpoint, in the first quarter of 2023, Xiaomi was overtaken by Samsung and vivo, falling from first to third, and its market share dropped to 16%.

The Indian Mobile and Electronics Association also wrote a letter to the Indian government in May last year expressing dissatisfaction with the law enforcement actions taken by Indian law enforcement agencies against mobile phone companies. The association stated in the letter that the actions caused "deep and unnecessary panic" in the industry. The association is an industry organization representing relevant enterprises across India.

Chinese enterprises in a dilemma

In the meeting convened by the Indian Ministry of Electronics and Information Technology, the Indian government focused on "setting conditions", while "tax evasion" was mentioned in the last paragraph, after all, this is a means rather than an end.

The attending President of Realme International Business, Seth, stated that the Indian government hopes that these Chinese enterprises can utilize local talents and ecosystems to build India into a production and export base. This will add added value to the Indian industry and promote local businesses to be self-sufficient.

Under the conditions imposed by the Indian government, key positions such as CEO, CFO, and COO of Chinese mobile phone companies must be held by Indian nationals. This is actually not difficult. Chinese mobile phone manufacturers have been deeply rooted in India for a long time and have relied on local employees from the beginning, with a large number of Indian executives.

Even Indian media have stated that Chinese companies have trained Indian managers, partners, and distributors through local investments in recent years, forming a core operational team, which is also beneficial for local talent cultivation.

Regarding the requirement for Indian capital to invest in Chinese enterprises, or even hold a controlling stake, Chen Jing told First Financial reporters that in fact, in order to protect ethnic enterprises, there are also situations in other countries where domestic enterprises are required to hold a controlling stake when accepting foreign investment. However, this prerequisite is already explicitly stated when foreign investment enters, and India has adopted a strategy of changing it afterwards.

Chen Jing further analyzed that India first provides some sweetness to foreign investment, and continuously induces foreign enterprises to invest a large amount of manpower and material resources in India through tariffs and other thresholds. After the timing is ripe, relevant policies will be introduced to put foreign-funded enterprises in a dilemma, "agreeing to greater losses, not agreeing to greater losses.".

Regarding the future direction, Chen Jing believes that Chinese companies should negotiate with the Indian government and choose a solution with smaller losses. Instead of fully accepting the plan proposed by the Indian government or leaving the Indian market.

In fact, getting out of the Indian market is not an easy task. For example, Ford Motor Company began operating in India in 1995 and announced its withdrawal from the Indian market in 2021 due to accumulated losses exceeding $2 billion. However, due to labor disputes, it was only after closing the factory for a year that a severance compensation agreement was reluctantly reached with the workers.

As an old player in the Indian mobile phone market, Chinese mobile phone manufacturers have encountered big problems in India. However, in today's saturated global mobile phone market, India is still a market that foreign mobile phone manufacturers are competing to seize. In April of this year, Apple CEO Cook visited India and expressed his hope to expand production scale and smartphone sales in the country.

Due to the transfer of technology and production capacity, JPMorgan Chase predicts that by 2025, Apple will produce a quarter of its iPhones in India. The Counterpoint report also states that in 2020, Indian made iPhones accounted for only 1.3% of its global production, and in 2022, the proportion has risen to 4%. It is expected to rise to 7% this year.

However, under such good expectations, Wistron, an important iPhone supplier that has been operating in India for many years, recently announced its withdrawal from the Indian market. After exiting, the local Indian company Tata Group acquired Wistron's factory in India to undertake its production tasks in India. The reason why foreign investment has been losing to India one after another is thought-provoking.