After a long period of suppression of Chinese-funded mobile phone companies through various methods, the Indian government finally opened a "final solution" in recent days, which also made the true intention of the Indian government revealed.
According to Indian media, India's Ministry of Electronics and Information Technology recently convened a meeting of Chinese-funded 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, enterprises should open up Indian capital to shareholding; The core executives must be Indian nationals; manufacturing and assembling mobile phones by Indian enterprises; Train Indian distributors to expand exports.
Sha Jun, co-founder of the Indian Investment Service Center of Yingke Law Firm, told First Financial Reporter that from the perspective of enterprises, these new requirements have significantly changed the cost structure and even the governance structure of enterprises, exceeding the original expectations of enterprises, and the pressure will be great.
These conditions imposed by the Indian government require these Chinese-funded enterprises to accelerate the "Indianization" and eventually become Indian-funded enterprises. At the same time, India's appetite does not stop at the domestic market, but also hopes that Chinese companies will help India improve its position in the global industrial chain and supply chain.
People gather at a market in New Delhi, India, on April 26. Xinhua
Chen Jing, vice president of the Science and Technology and Strategy Wind and Cloud Society, told the first financial reporter that India hopes to copy the success of China's mobile phone industry to India completely, and has a complete and careful plan for this, and has achieved some results under the systematic play.
He further said that for the systematic suppression of the Indian government, individual enterprises are unable to deal with it, and the worst situation is to be broken by each one. Therefore, it is necessary for Chinese enterprises to join forces, conduct overall negotiations with the support of the state, and improve the level of response.
Millet and others have been cultivated in India for many years
It is worth noting that just before and after the meeting, on June 9, India's Central Enforcement Authority issued a notice to Xiaomi Technology India and three banks, accusing Xiaomi of violating the Foreign Exchange Management Act (FEMA) by "illegally transferring funds to foreign entities." The agency froze 55.51 billion rupees (4.834 billion yuan) of Xiaomi's funds last year, and the notice means that the funds may be forfeited.
At the time when the Indian government issued a "solution", the above notice was issued at the same time, which seemed to the outside world to be quite shocking.
Rs 5,551 crore is not a small amount for Xiaomi. According to the calculations of local media in India, the cumulative profit of Xiaomi India in India for 9 years is 946 crore, if only from the perspective of profit income, Xiaomi in India is almost for nothing.
In addition, according to the 2022 annual results announcement released by Xiaomi Group in March this year, the adjusted net profit of RMB 8.5 billion and Rs 55.51 billion also accounted for more than half of the Group's annual profit.
Forfeiture due to tax issues is a common problem encountered by Chinese mobile phone companies in India. In addition to the head brand enterprises, a Chinese-funded mobile phone accessories company in India also told the first financial reporter that due to the investigation of upstream and downstream Chinese-funded enterprises, they were also subject to tax investigations and were tired of coping.
India is now the world's most populous country, and its market potential is quite attractive for any multinational company. Chinese mobile phone companies have entered the Indian market around 2014, in addition to the advantage of the population base, another major attraction is that Modi took office that year and put forward the slogan of "Make in India", hoping to vigorously develop India's manufacturing industry.
Since then, Chinese mobile phone brands represented by Xiaomi have appeared in India, and have gradually grown into local household names with high cost performance. According to India's 2022 market research data, at least two out of every three smartphones in India are Chinese brands, and Chinese mobile phones occupy an absolute advantage in the Indian market.
However, the good days of Chinese mobile phones in India did not last long. In 2020, as Sino-Indian relations became more tense, India first launched a Chinese mobile phone app in June of that year, banning 59 mobile apps in the first batch, and then continuously adding more, with a cumulative number of more than 200.
Among them, there are many software such as TikTok and WeChat that represent China's mobile phone software industry, as well as supporting software for Chinese-funded mobile phones such as "Xiaomi Community" and "Xiaomi Video Phone".
After a brief silence, India eventually set its sights on mobile phone hardware. On the evening of December 21, 2021, law enforcement officers from the Revenue Department of the Ministry of Finance of India acted in unison and unanimously pounced on more than 20 Chinese-funded mobile phone companies across India to check taxes.
From Delhi, the capital city, to Mumbai, the economic hub, to Bangalore, India's tech hub, no one has been spared. Such a concerted and large-scale action, even the Indian media is not difficult to conclude that this is "a siege and suppression" of Chinese mobile phone suppliers.
Xiaomi and a number of Chinese mobile phone companies are involved in the center of the storm. Xiaomi's share of mobile phones in the Indian market began to decline. In 2020, its shipments also accounted for 26% of the Indian market; According to data released by Counterpoint, in the first quarter of 2023, Xiaomi has been overtaken by Samsung and vivo, falling from first to third, and the market share has dropped to 16%.
The India Cellular & Electronics Association also sent a letter to the Indian government in May expressing dissatisfaction with the enforcement actions of Indian law enforcement against mobile phone companies, saying that the action had caused "deep and unnecessary panic" in the industry. The Association is a trade body representing relevant businesses from all over India.
Chinese enterprises are in a dilemma
In the meeting convened by the Indian Ministry of Electronics and Information Technology, the Indian government focused on "opening conditions", and "tax evasion" was passed in the last stroke, after all, this is a means rather than an end.
MadhavSeth, president of Realme's international business, said the Indian government hopes these Chinese companies can leverage local talent and ecosystems to build India into a production and export base. This will add value to Indian industries and promote local businesses to become self-reliant.
The conditions imposed by the Indian government include that key positions such as chief executive officer, chief financial officer and chief operating officer of Chinese mobile phone companies must be held by Indian nationals. This is not difficult, Chinese mobile phone manufacturers have been in India for a long time, from the beginning rely on local employees, there are a large number of Indian executives.
Even Indian media said that Chinese companies have trained Indian managers, partners and distributors through local investment in India in recent years, forming a core team of operations, which is also beneficial to local talent training.
Regarding the requirement for Indian capital to invest in Chinese-funded enterprises, or even to hold shares, Chen Jing told the first financial reporter that in fact, in order to protect national enterprises, in other countries there are also cases where domestic enterprises are required to hold shares when accepting foreign investment, but this precondition has been made clear when foreign capital enters the market, and India has adopted a strategy that has been changed after the fact.
Chen Jing further analyzed that India first gave some sweetness to foreign capital, and continuously induced foreign-funded enterprises to invest a lot of manpower and material resources in India through thresholds such as tariffs. When the time is ripe, relevant policies will be offered, so that foreign-funded enterprises will fall into a dilemma, "promising a large loss, not promising a greater loss."
As for the future direction, Chen Jing believes that Chinese companies should negotiate with the Indian government and choose a plan with less losses. Instead of accepting the Indian government's offer entirely, or exiting the Indian market and walking away.
In fact, it is not an easy task to walk away from the Indian market. For example, Ford Motor began operating in India in 1995 and announced its withdrawal from the Indian market in 2021 due to a cumulative loss of more than $2 billion in the Indian market, but due to labor disputes, it reluctantly reached a severance compensation agreement with workers one year after closing the factory.
As an old player in the Indian mobile phone market, Chinese mobile phone manufacturers have encountered big trouble in India, but today, when the global mobile phone market tends to be saturated, India is still a market for foreign mobile phone manufacturers to grab. In April, Apple's chief executive officer (CEO) Tim Cook visited India and said he wanted to expand production and smartphone sales in the country.
Thanks to the acquisition of technology and capacity transfers, JPMorgan expects Apple to produce a quarter of its iPhones in India by 2025. The Counterpoint report also said that in 2020, India-made iPhones accounted for only 1.3% of its global production, and the proportion has risen to 4% in 2022 and is expected to rise to 7% this year.
However, under such good expectations, Wistron, an important supplier of iPhones that has been operating in India for many years, recently announced its withdrawal from the Indian market. After the exit, Tata Group, a local Indian company, acquired Wistron's factory in India to undertake its production in India. The reasons for the successive defeats of foreign capital in India have to be pondered.