Official notification from India! 4.8 billion yuan confiscated? Xiaomi responds! Xiaomi | Mobile | India

On June 13th, according to media reports, the Indian law enforcement agency issued a document stating that it had officially issued a notice to Xiaomi India, relevant executives of the company, and three banks, stating its illegal remittance of 55.51 billion rupees.

Regarding this, Xiaomi officials responded to the media that their attitude towards the case remains consistent with before. Previously, in response to the court's rejection of the appeal, Xiaomi stated, "We are currently studying the matter and awaiting a written judgment. We hereby reiterate that our business in India complies with relevant laws and regulations in India."

India officially notifies Xiaomi that 4.8 billion yuan of funds may be confiscated

According to foreign media reports, the Indian law enforcement agency released a document on June 9th stating that the agency has issued formal notices to Xiaomi Technology India Private Limited, Xiaomi India Branch, some executives, as well as three banks including Citigroup, HSBC, and Deutsche Bank, accusing them of "illegally transferring funds to foreign entities" and suspected of violating the country's Foreign Exchange Management Law.

The institution said that the three banks received the notification because they were suspected of allowing overseas remittances as patent fees without conducting due diligence and obtaining necessary documents.

Based on this accusation, Indian authorities have previously seized a total of 55.51 billion rupees of funds from Xiaomi, equivalent to approximately 4.82 billion yuan, which is said to be the largest amount of seizure by Indian authorities to date. This notice may imply that the frozen funds mentioned above will be officially confiscated.

At present, Xiaomi India Branch, Xiaomi Technology India Private Limited, Xiaomi Technology India Chief Financial Officer Rao, former Managing Director Jia Yin, Citibank, HSBC, and Deutsche Bank have also received relevant notices.

This accusation can be traced back to the heated "illegal remittance" dispute in May last year.

In May 2022, due to allegations of illegal remittances, the Indian law enforcement agency froze 4.8 billion yuan of funds involved in Xiaomi's bank account. Afterwards, Xiaomi appealed against it, but it was rejected by a local court in India in April 2023. As of now, the Indian law enforcement agency has not mentioned the results of the handling of frozen funds.

It is reported that the key to the dispute between the two sides lies in the determination of the royalty fee.

The Indian law enforcement agency believes that Xiaomi India remitted royalties to three overseas entities, including Xiaomi Group, in the name of payment. Xiaomi India's move is suspected of violating India's Foreign Exchange Management Law and illegally remitting funds to foreign entities, and the relevant funds have been seized.

In response to the allegations from the Indian law enforcement agency, Xiaomi India previously stated, "As a brand dedicated to India, all operational activities strictly comply with local laws and regulations. We believe that the royalties and bills paid to banks are legal and genuine. The royalties paid by Xiaomi India are used for the licensed technology and intellectual property used in the Indian version of the product. For Xiaomi India, paying such royalties is a legal business practice. Of course, we will maintain close cooperation with the government to clarify any misunderstandings."

The frozen funds are a considerable amount for Xiaomi. According to financial report data, Xiaomi Group's adjusted net profit in 2022 was 8.5 billion yuan, and frozen funds have exceeded 50% of Xiaomi Group's net profit last year.

Becoming the largest smartphone brand in India in 2017

The Indian market has always been an important component of Xiaomi's overseas market. Public information shows that Xiaomi entered the Indian market in 2014. Xiaomi's pace of entering India is quite rapid. In 2014, the Xiaomi 3 made its first appearance in India. Within a month, Xiaomi sold 120000 phones through online shopping. In just one quarter, Xiaomi's share in the Indian smartphone market reached 1.5%. In 2017, it became the largest smartphone brand in India.

But in the first quarter of this year, Xiaomi's market share in India declined. According to Counterpoint data, the total shipment volume of the Indian mobile phone market in the first quarter of 2023 was 31 million units, a year-on-year decrease of 19%, breaking the record for a single quarter decline in India. Among them, Xiaomi's sales only rank third.

According to Counterpoint data, in the first quarter of 2022, Xiaomi ranked first in the Indian market with a 23% market share, followed by Samsung, realme, vivo, and OPPO. In the first quarter of 2023, there was a significant change in the sales ranking in the Indian market. Samsung ranked first with a 20% market share, Vivo ranked second with a 17% market share, Xiaomi ranked third with a 16% market share, followed by OPPO and realme.

Overall, the Indian mobile phone market is experiencing a decline in concentration, with the market share of the top five mobile phone manufacturers dropping from 82% in the first quarter of 2022 to 75% in the first quarter of 2023. Among them, Xiaomi and realme have seen a significant decline in market share. In the first quarter of this year, both Xiaomi and realme's market share decreased by 7 percentage points compared to the same period last year.

India is no longer an investment paradise for Chinese mobile phone manufacturers

Xiaomi's experience in the Indian market is not an exception. "In fact, even before the epic financial regulatory punishment against Xiaomi in India, OPPO, vivo, and several other Chinese companies had received multiple warnings and punishments. Not only Chinese technology companies, but also consumer electronics giants from other countries and regions have been punished," Chen Jia, an independent international strategy researcher and former researcher at the International Monetary Research Institute of Renmin University of China, said in a media interview.

In July 2022, OPPO was accused of evading tariffs by 43.9 billion Indian rupees. The Indian Tax Intelligence Agency stated that OPPO mistakenly used tariff exemptions when importing mobile phone parts and did not include royalties when calculating the transaction value of imported goods.

In the same month, vivo's 119 Indian related bank accounts were blocked by Indian law enforcement agencies, totaling 4.65 billion rupees. The Indian law enforcement agency accused Vivo India of remitting 624.76 billion rupees to China and other places to evade taxes, equivalent to about half of the company's revenue, in a related statement.

Zhang Xiaorong, Dean of the Deep Technology Research Institute, said that the experience of mobile phone manufacturers such as Xiaomi in the Indian market has sounded an alarm for Chinese companies, and India is not an investment paradise.

"For a long time, people have had an inherent impression that India has a large population base and is the world's second largest mobile phone consumer market. However, for Chinese companies, the Indian market poses greater risks and faces multiple obstacles and challenges, which are related to their local culture and political environment." said Zhang Xiaorong.

But for domestic mobile phone manufacturers, the Indian market is still a difficult presence to give up. In 2022, India's total GDP approached $3.4 trillion, surpassing the UK to become the world's fifth largest economy. In the same year, India's GDP increased by 6.7% year-on-year, ranking among the top in the world in terms of growth rate. In terms of population, according to a report released by the United Nations in April this year, it is estimated that India's population will surpass China's by the middle of this year, becoming the world's most populous country.

Chen Jia said, "India's total national income growth rate and per capita income growth rate are both at a high level, and it has growth potential in various aspects such as market base, growth potential, population quantity and quality balance, and maintaining strong enthusiasm for the consumer electronics market demand. This is also the core reason why domestic mobile phone manufacturers still insist on long-term layout in India, knowing that India is the 'world's most difficult country to do business' rated by the World Bank."

According to the 2020 Global Business Environment Report released by the World Bank, India is considered one of the "hardest countries in the world to do business".

Chen Jia believes that the vast majority of companies, including Xiaomi, have not chosen to back down or take a detour in the face of India's increasingly stringent targeted and rough regulation. They have a longer-term strategic intention: from factors such as market, labor structure, and prices, India is an important market and factory.

Xiaomi has conducted thorough research and consideration on the systemic risks of doing business in India, and does not simply go to India for development and rush back when things don't go as planned. Being able to make the world's top mobile phone companies less childish is not just about multinational corporations' international strategies. Ultimately, the fundamental root cause of discrimination against Chinese companies in India is not their overseas strategy. Almost all foreign and foreign companies in India will be suppressed by various aspects of the Indian market, which is precisely the characteristic of the Indian market. All companies that strategically decide to develop in India will consider this issue comprehensively and have their own precise stop loss and stop loss balance lines. "We won't easily change due to the gains and losses of one city and one pond," said Chen Jia.

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