China yet again managed to make to the headlines for all wrong and unethical reasons. Chinese companies in India are in for trouble. ED, the Income Tax (IT) department and the Directorate of Revenue Intelligence (DRI) have been investigating Chinese tech companies in India for quite some time. Its another dip in the already strained relations between India and China since the Galwan valley crisis in 2020.
Indian agencies vs Chinese Cos
Recently, ED froze Vivo’s 10 Indian bank accounts before raiding over 40 offices of the phone maker and 23 associate companies alleging that the concerned firms violated the Prevention of Money Laundering Act (PMLA). During its probe, the agency seized Rs 73 lakh worth cash and 2kg gold bars.
In addition to this, the department also said that it blocked 119 bank accounts pertaining to the company holding Rs 4.65 billion or $58.76 million over the allegations that the company had remitted almost 50 percent of its sales turnover in India, which stands at around Rs 62,476 crore, to China in a bid to avoid paying taxes here.
Apart from allegations of violation against PMLA, the ED is also investigating Vivo regarding security-related issues based on an FIR filed by Delhi Police against one of the company’s distributors in Jammu & Kashmir. As per the FIR, the company is alleged of being involved in forging the identity papers of some Chinese nationals.
The Delhi High Court on July 13 allowed Vivo to access its bank accounts, but with a rider. It must furnish Rs 950 crore as a bank guarantee and maintain Rs 250 crore in its accounts at all times.
For Oppo India, the (DRI) detected alleged customs duty evasion of nearly Rs 4,389 crore. The notice also proposes penalties under the provisions of the Customs Act, 1962.
The DRI officials said that during the course of the investigation, searches were conducted by the agency at the office premises of Oppo India and residences of its key management employees, which led to the recovery of incriminating evidence indicating wilful mis-declaration in the description of certain items imported by Oppo India for use in the manufacture of mobile phones.
Mis-declaration resulted in wrongful availment of ineligible duty exemption benefits by Oppo India amounting to Rs 2,981 crores.
Similarly, ED, in April this year, seized funds worth Rs 5551.27 crore of Xiaomi Technology India Pvt Ltd alleging that the company had violated foreign exchange regulations on the country. ED said that the company has remitted foreign currency worth Rs 5551.27 crore to three foreign-based entities which include one Xiaomi group entity in the guise of royalty starting 2015.
Premises of a number of these Chinese smartphone companies including Xiaomi, Oppo and Vivo, their distributors and linked associates were raided across the country by the I-T department in December last year and it later claimed to have detected alleged unaccounted income worth over Rs 6,500 crore due to violation of the Indian tax law and regulations.
The pushback was visible on the 5G front as well. In May 2021, the government gave the go-ahead for 5G trials around the peak of the deadly Delta wave. However, Huawei was not allowed as one of the telecom service providers’ equipment and technology partners that included Airtel, Reliance, Vodafone Idea and MTNL. In magnitude, the move was more significant than banning all the Chinese mobile apps, including TikTok.
Chinese-state run media has said the firms should not give up using legal weapons to defend their rights. An opinion piece in Global Times said, “For Chinese companies such as Vivo that have long contributed to the Indian economy and operate legally in the local market, legal weapons have become the last line of defence.”
The Mastermind Revealed
BBK Electronics is the hidden name behind some of the most popular smartphone brands in India. It is a Dongguan-based privately held smartphone manufacturer started by a billionaire Duan Yongping in 1995. Controlling one of the world’s largest and most sophisticated electronics supply chains.
BBK has had three major verticals: education electronics, audiovisual equipment, and communications devices, with separate division heads and teams. Four years after its inception, Yongping began spinning off these divisions into individual entities in 1999, thereby reducing his stake in BBK Electronics to 17%. This is how Oppo was created in 2004, headed by Chen Mingyong, and Vivo in 2009, led by Shen Wei.
It introduced new brands such as OnePlus, Realme and iQOO to diversify its portfolio. BBK is not only the largest phone maker in China – its brands have performed extremely well in India as well. Data indicates that together, the share of these three smartphone manufacturers Vivo, Oppo and Realme almost doubled during this period (2017 -2021). And in the first quarter of 2022, they held the biggest chunk of the Indian market – 40%.
Those times are gone when China got a free pass in India. However, there is a huge disparity between India’s export to China and vice-versa. China. one hand has shifted from pure commodity to technology driven value added products, whereas, India is still primarily indulging in the raw material and basic commodities. This has forced the Indian manufacturing industry to take a back seat. India’s many export items still don’t get market access in China.
The Indian government is coming down heavily on these issues and decoding the Chinese puzzle to boost the Indian economy. The government has paved the way for PLI schemes, anti-dumping duties. In a move that will restrict Chinese investments, the government has made prior government approval mandatory for foreign direct investments from countries which share a land border with India. Encouraging initiatives like Atmanirbhar Bharat will ultimately get rid of the reluctance of the manufacturers to compete globally.
India has to be on its toes and tackle the problem of predatory pricing and trade distorting practices of China continuously. The remedies against these issues will be effective if India creates its own area of excellence in terms of technology, pricing power and branding for selected products. The same has been achieved in case of IT services. Now it is time for recreating that magic in value added products.