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On the first day of the May Day holiday, the topic of "India freezes Xiaomi's 4.8 billion assets" rushed to Weibo's hot search. After several months, Xiaomi was once again investigated by the Indian authorities.
On April 30, the Enforcement Agency of India's Financial Crimes Fighting Agency issued a statement saying that Xiaomi India, in the name of paying royalties, was suspected of illegally sending money to three overseas entities, including Xiaomi Group, violating the relevant provisions of India's Foreign Exchange Management Law established in 1999, and therefore froze the account assets of Xiaomi Technology India Pte Ltd. of Rs 555.127 million (about 4.8 billion yuan, $725 million).
It is reported that Xiaomi India is a wholly-owned subsidiary of China's Xiaomi Group, and the funds seized by the Indian Law Enforcement Agency are still in the company's bank account.
Xiaomi India started operating in India in 2014 and has been sending money to overseas entities since 2015. As of the date of the asset freeze, Xiaomi India had remitted more than Rs 555 crore of foreign currency to three offshore entities. The reason for the asset freeze is "illegal remittances", and as early as the beginning of this year, the Indian Law Enforcement Agency has launched an investigation into the matter and questioned Manu Kumar Jain, Xiaomi's global vice president.
The Indian Enforcement Agency believes that the mobile phones sold by Xiaomi in India were purchased and manufactured entirely from Indian manufacturers, and Xiaomi India has not received any services from three foreign entities. This practice of using royalties and royalties as a "guise" is only to provide misleading information to banks under the cover of various unrelated documents created between Xiaomi Group entities, thereby remitting funds to overseas entities. The Indian Enforcement Agency also said that these fees were remitted by Xiaomi India in accordance with the instructions of its Chinese parent company entity, and the amount remitted to the other two US non-affiliated entities was also in the ultimate interest of the Xiaomi Group entity.
To put it simply, the Indian side believes that Xiaomi India remitted patent licensing fees and royalties related documents to Qualcomm and China's Beijing Xiaomi Mobile Software Company, which are not included in the transaction value of its imported goods, and have constituted tax evasion and need to be re-taxed.
In response, Xiaomi India issued a statement yesterday evening saying: "All operations of Xiaomi India are strictly in accordance with local laws and regulations, and these royalties paid are used for the licensed technology and intellectual property rights used in the Indian version of the product." It is a legitimate business practice for Xiaomi India to pay such royalties and will work closely with the government to clarify any misunderstandings. ”
It was investigated at the end of last year and was also pursued at the beginning of the year
In fact, this survey of Xiaomi India is already the second time this year.
On December 21 last year, law enforcement officers from the Revenue Department of the Ministry of Finance of India conducted tax inspections in more than 20 places across India, and the evidence collected by the Indian Tax Intelligence Agency during the investigation showed that neither Xiaomi India nor its contract manufacturers included the "royalty amount" paid by Xiaomi India in the assessed value of its imported goods when declaring tariffs, which violated the provisions of India's Customs Law and customs valuation rules.
At that time, Xiaomi Group responded that the root cause of the tax problem was that there were differences between the parties on the price determination of imported goods. Whether royalties, including patent royalties, should be included in the price of imported goods is a complex technical dilemma in all countries. Xiaomi also said that what the Indian authorities required Xiaomi to pay was the import link tax related to the royalties between April 1, 2017 and June 30, 2020, which had nothing to do with Xiaomi's recent business, and the official statement was not the final result.
On January 5 this year, India's Ministry of Finance said in a statement that after discovering tax evasion, it had issued a notice to Xiaomi India to recover 653 million rupees (about $88 million) in taxes to the company. On April 14, Manu Kumar Jain, vice president of Xiaomi India, was asked to testify in court to investigate whether Xiaomi's business practices violated Indian law.
In contrast, the asset freeze has a greater impact on Xiaomi India.
However, Xiaomi is not the only brand that has been chased by India's Ministry of Finance to pay taxes. Since December last year, Chinese-funded mobile phone companies such as Xiaomi and OPPO have been investigated, which are also the more well-known mobile phone brands in India.
Chinese smartphones already occupy half of India
According to the market research agency Canalys released the first quarter of 2022 Indian market smartphone shipment report, the top five manufacturers in shipments are: Xiaomi, Samsung, realme, vivo, OPPO, Chinese mobile phone manufacturers in India has more than 50% of the shipments. However, although shipments fell 24% year-on-year, Xiaomi still topped the list with shipments of 8 million smartphones, with a market share of 21%. For the whole of last year, India's smartphone shipments increased by 11% year-on-year to 169 million units, the smartphone market revenue exceeded $38 billion, an increase of 27% year-on-year, xiaomi led with a market share of 24%, and its share in india's high-end market also reached an all-time high, up 258% year-on-year.
In the first quarter of this year, the performance of China's domestic smartphone market continued to lag behind the global market, with only 75.6 million units shipped, down 18% year-on-year and 13% month-on-month. Therefore, in the case of weak demand for domestic smartphones and a long replacement cycle, overseas markets are particularly important for Xiaomi. Last year's Xiaomi third quarter financial report data showed that the quarter's overseas revenue reached 22.3 billion yuan, an increase of 112.7% year-on-year, accounting for 43.9% of the group's total revenue, breaking through 40% for the first time.
In 2021, Xiaomi's overseas shipments of mobile phones reached 140 million units, of which about 40 million were sold in the Indian market, and if it lost the leader position in the Indian market, it would be a big blow to Xiaomi. Lei Jun also told the Indian media that the importance of the Indian market to Xiaomi is comparable to that of the Chinese market.
Although Xiaomi has taken the first place in the Indian smartphone market since the third quarter of 2017 and has maintained it so far, data from the fourth quarter of last year shows that Xiaomi's mobile phone shipments in the Indian market have plummeted by about 26%, from 12 million to more than 8 million, resulting in its market share having decreased by about one-third compared with more than 30% of its peak.
In contrast, last year, Realme maintained strong growth in India, the fastest growth among the top five brands, has gained more than 16% market share, and is very close to Xiaomi's 21% share; and OnePlus also achieved the highest shipments ever last year and led the high-end market; at the same time, in India's 5G mobile phone shipments last year, Vivo ranked first with a 19% share.
The rapid development and layout of these Chinese companies in India have formed a certain impact on Xiaomi.
In the "India Smartphone Shipment Ranking Report for the First Quarter of 2022" released by Canalys, major mobile phone brands shipped a total of 38 million smartphones, an increase of 2% over 2021, this single-digit growth rate may indicate that the Indian market has also become a stock market to some extent, and how to divide this cake has become more important.
For Xiaomi, more than two-thirds of its shipments in India come from the price range below 10,000 rupees ($150), and the contribution of low-end mobile phones to overall growth is very limited. Therefore, on the basis of having opened 500 offline stores, Xiaomi announced that it will continue to expand to more than 5,000 at the end of this year, which can be seen to continue to exert efforts in the Indian offline market, and last year, Xiaomi with the 11X series, the high-end smartphone market in India increased by 258%, and the initiative of deep cultivation offline and high-end power may be carried out simultaneously.
It is difficult for Chinese companies to do business in India
For reasons that are well known, it has become more difficult for many Chinese companies to do business in India.
In 2020, India banned more than 300 apps developed by dozens of Chinese companies on national security considerations, including TikTok, Wechat, Baidu, Xiaomi Community, Xiaomi Video Calling and others, and tightened regulations on Chinese companies investing in India.
In 2021, India stopped approving the local license for Chinese WiFi module products, forcing companies to move their overall manufacturing to India, and domestic brands such as Xiaomi, Lenovo, and OPPO were affected.
In addition, Huawei did not appear in the list of participants in the Indian 5G trial, but european and South Korean companies were licensed.
For Chinese companies, India has gradually shown a regulatory system that does not welcome business interests from China, and in this environment, domestic manufacturers can only continue to polish their products, develop technology, and create higher core barriers, which is the best way to survive.
Resources:
1. "2021 Indian smartphone market sales released: Millet first! Chinese brands become big winners! 》， EETOP
2. "Xiaomi seized $725 million by the Anti-Money Laundering Department of the Government of India," Engadget
3. "4.8 billion yuan of assets seized by India Xiaomi response: All local operating activities are legal", 21 Finance
4. "There is a disagreement in the determination of the price of imported goods, and Xiaomi India has been detained for another $725 million due to taxes", CBN
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