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Xiaomi says government scrutiny of Chinese companies is disrupting smartphone suppliers

China’s Xiaomi said in New Delhi that smartphone component suppliers were reluctant to set up operations in India, amid tight government surveillance of Chinese companies, according to a letter and a source with direct knowledge of the matter.

Xiaomi, which has the largest share of the Indian smartphone market at 18%, also requests in the letter dated February 6 that India consider offering manufacturing incentives and reducing import duties for certain components of smartphones.

The Chinese company assembles smartphones in India with mainly local components and the rest imported from China and elsewhere. The letter is Xiaomi’s response to a question from India’s information technology ministry asking how New Delhi can further develop the country’s component manufacturing sector.

India stepped up its surveillance of Chinese companies after a border clash between the two countries in 2020 killed at least 20 Indian and four Chinese soldiers, disrupting investment plans of major Chinese companies and sparking repeated protests from Beijing .

While Chinese companies operating in India are reluctant to speak publicly about the scrutiny, Xiaomi’s letter shows that they continue to face difficulties in India, particularly in the smartphone space, where many critical components come from suppliers Chinese.

In the letter, Xiaomi India President Muralikrishnan B. said India needs to work on “confidence building” measures to encourage component suppliers to set up shop locally.

“There are apprehensions among component suppliers about setting up operations in India, due to the challenges faced by companies in India, especially those of Chinese origin,” Muralikrishnan said, without naming any company.

The letter said the concerns were related to compliance and visa issues that it did not elaborate on, as well as other factors. He said “the government should address these concerns and work to build confidence among foreign component suppliers, encouraging them to establish manufacturing facilities in India.”

Xiaomi and the IT ministry did not respond to requests for further information and comments.

Last year, Indian authorities accused Chinese smartphone company Vivo Communication Technology of violating some visa rules and alleged that it had siphoned off $13 billion (around Rs 1,07,895 crore) from funds from India.

India has also frozen over $600 million (around Rs 4,979 crore) of Xiaomi’s assets for alleged illegal fund transfers to foreign entities by passing them off as royalty payments.

Both Chinese companies deny any wrongdoing.

Besides regulatory scrutiny of Xiaomi and Vivo, India has also banned more than 300 Chinese apps since 2020, including ByteDance’s TikTok, and halted planned projects such as those planned by Chinese automakers BYD and Great Wall Motor.

The source said many Chinese electronics company executives are struggling to obtain visas to enter India, and their companies continue to face slow investment approvals due to New Delhi.

In the letter, Xiaomi’s Muralikrishnan also argued for further reduction in import duties in India, right after New Delhi’s decision on January 31 to reduce import taxes on battery covers and phone camera lenses.

Xiaomi is also asking India to reduce import duties on sub-components used in batteries, USB cables and phone cases, according to the letter.

Reducing import duties could “increase the competitiveness of the Indian manufacturing sector… in terms of costs”, Xiaomi said in the letter, but to attract component makers to set up in India, incentives would be needed more important.

In January, India’s top industrial policy official, Rajesh Kumar Singh, indicated that India could ease its increased monitoring of Chinese investments if the border between the two countries remained peaceful.

© Thomson Reuters 2024

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