India "looted" Chinese mobile phone manufacturers

Text: Zinc Finance Lu Shiming

Edited by Gale

Recently, according to a number of media reports, the Enforcement Directorate of India recently arrested a number of executives of vivo India on the grounds of "anti-money laundering investigation", and it is reported that the detained employees include the interim CEO and CFO of vivo India. A Vivo spokesperson said it was "deeply alarmed", saying that the Indian authorities' "recent arrests show that harassment continues, creating uncertainty for the industry as a whole."

It is reported that in October this year, India's financial law enforcement agency also arrested vivo employees on suspicion of money laundering.

This is not the first time that Chinese mobile phone manufacturers have encountered trouble in India, since India strengthened its investment review of Chinese companies in 2020, a number of Chinese mobile phone manufacturers, including Huawei, Xiaomi, OPPO, and vivo, have been investigated by relevant departments of the Indian government.

In fact, aside from Chinese mobile phone manufacturers, over the years, many well-known companies in the world have had the experience of being "looted" in India. Due to many factors such as the federal system, the complex tax system, and the protection of national industries, India has become a veritable "cemetery for foreign investment".

However, from the perspective of the mobile phone industry alone, under the temptation of huge development space and destocking, it is still difficult for Chinese mobile phone manufacturers to give up the Indian market.

Huami OV, Indian Calendar

On April 17, 2020, India's Ministry of Industry and Domestic Trade Promotion issued a new policy on foreign direct investment from China. Since then, the Indian government has continued to restrict Chinese companies, and Chinese mobile phone manufacturers, which are growing rapidly in India, have become "main targets".

On January 5 last year, the Ministry of Finance of India issued a statement at the Government Information Bureau of the Government of India saying that the Indian Revenue Intelligence Bureau had issued a notice to Xiaomi Technology India Limited, requiring Xiaomi India to pay 6.53 billion Indian rupees (about 560 million yuan) missing taxes between April 1, 2017 and June 30, 2020.

The reason given by the Ministry of Finance of India is that Xiaomi India did not take into account the patent license fees and royalties paid to Qualcomm and Xiaomi Mobile Software in Beijing in the declaration of import value, which depressed the value of the goods and violated India's Customs Act.

In other words, the local tax authorities in India believe that Xiaomi's products are worth how much they have to pay taxes, and they don't care about the losses caused by the increase in marketing expenses and the increase in subsidies for offline channels.

As one of the representatives of Chinese mobile phone manufacturers, Xiaomi was suddenly inspected by India, and this "explosive" news quickly caused heated discussions in China. But just before the end of public opinion, only a month later, Huawei was "looted" again.

On February 15 last year, Indian tax authorities raided Huawei's offices in New Delhi, Gurgaon, and Bangalore, the third largest city, on suspicion of tax evasion. It is understood that the investigators not only checked the company's financial documents, account books, company records, Huawei's Indian business and overseas transaction materials, but also took some documents.

In response to Huawei's "strict compliance with all local laws and regulations", people thought that the turmoil would stop there, but it is clear that Chinese netizens underestimated India's ability to "revitalize".

In April last year, the Indian government passed the Chartered Accountants, Cost and Engineering Accountants and Company Secretaries (Amendment) Act, which is seen as a further blow to Chinese investment in India. In the more than a year since the bill was passed, Chinese mobile phone manufacturers have been investigated several times by India.

Among them, vivo was suspected of "money laundering" and 119 bank accounts were frozen, with a total amount of 4.65 billion rupees (about 386 million yuan), and 9.5 billion rupees (about 801 million yuan) of guarantees had to be provided to the bank to unblock. and OPPO, which was also accused of evading tariffs of 43.9 billion rupees (about 3.718 billion yuan).

Not only Huami OV, but also Chinese mobile phone manufacturers such as Transsion, OnePlus, and Realme have been subject to so-called "investigations" in India in recent years. Earlier, ZTE had also been searched by the Indian side.

As an important player in the Indian mobile phone market, Chinese mobile phone manufacturers have created a large number of local jobs in India and made a positive contribution to India's economic development. However, the "tax storm" has made "foreign investors" more afraid of India's business environment.

It has become a tradition to specialize in foreign investment

The reason why I say "more fearful" is because there has always been a bad tradition of "closing the door to kill pigs" and "plucking geese" in the Indian market.

Not only Chinese mobile phone manufacturers and Chinese companies in other industries, whether it is Europe, the United States or other regions and countries, India is "treated equally", and many European and American industry giants have also had similar experiences of being "investigated" and "fined" in India.

For example, Nokia was fined $256 million in 2013, Microsoft was fined $170 million in 2016, Amazon was fined $3.5 million in 2019, Walmart was fined $1.35 billion in 2021, and Samsung was fined $212 million in 2022...... To this end, Europe and the United States have also deliberately invented an exclusive term "tax terrorism", that is, to intimidate multinational tax-paying enterprises into paying unreasonable taxes through legal means.

The first factor that causes India to form such a "tradition" is the lack of "trust" in foreign businessmen.

For India, a country that has not yet completed industrialization, it must be very desirable for foreign investors to invest in India, after all, foreign investment can bring a lot of jobs, tax revenue and manufacturing prosperity, and can help India greatly improve its economy. However, India is also very worried that foreign capital will deal a blow to India's national industry, and it is even more worried that if foreign capital grows bigger, it will lose its profits back to the investing country, so that India will "lose money."

Therefore, in order to protect local enterprises and prevent the loss of profits, India needs to build a "separation wall" through various targeted "laws". However, this lack of trust not only prevents the loss of profits, but also blocks the footsteps of foreign businessmen entering India.

Secondly, India's extremely complex tax system is also an important reason for the "fine" tradition.

India is a federal state, and each state has its own laws and taxes. For example, in most countries, the Goods and Services Tax is collected by the central government, but in a federal India, both the central and local governments collect taxes, which also gives India the authority to audit taxes.

This chaotic tax system has led some local governments in India to Xi the habit of choosing to "sink" the wool of foreign-funded enterprises in order to ease the financial pressure.

Under these two main factors, the Indian government has repeatedly taken action against foreign-funded enterprises for many years, which has caused many foreign-funded enterprises to talk about India, which has had a huge impact on India's goodwill. In particular, after the "targeted" investigation of Chinese companies in 2022, India's goodwill was completely bankrupt.

According to the Reserve Bank of India, India attracted a total of US$71 billion in FY 2022-23, down 16.3% from a record US$84.8 billion in FY 2021-22. Foreign direct investment (FDI) decreased by 27% to US$41.6 billion. It is reported that this is the first time in nearly 10 years that India's foreign investment has declined.

Evil deeds have their own consequences, and the "historic turnaround" in India's foreign investment is not surprising.

There are tigers in the mountains, and they are biased towards the mountains

Despite the intensification of India's investigations, domestic mobile phone manufacturers still will not give up the Indian market, and even the Honor mobile phone, which once announced its withdrawal from India, has a new plan to return this year.

In October this year, Madhav Sheth, the official head of Honor India, said in an interview with the media: "Honor is currently in talks with three contract manufacturers in India, and it is expected that in early 2024, Honor phones will be produced in India." It will also invest 4 billion rupees (about 350 million yuan) in India to establish an operation and distribution network in India. ”

Knowing that there are tigers in the mountains, he prefers to go to the tiger mountains. Why are Chinese mobile phone manufacturers so obsessed with India? Because India is a depression, a place where mobile phone manufacturers can regain high growth.

In March 2022, India's population reached 1,415.65 million, officially becoming the world's most populous country. In addition, data shows that the number of smartphone users in India in 2022 is 660.3 million, but its penetration rate is only 46.5%. Such a large population base and a very low smartphone ownership rate have given the Indian mobile phone market a huge space for development.

On the other hand, in the domestic smartphone market, after hitting the peak of shipments in 2016 and 2017, the consumer replacement cycle is getting longer and longer, and the overall market size of the industry is gradually shrinking. With the saturation of the market and the intensification of competition, domestic mobile phone manufacturers have to shift their strategic focus to overseas markets with incremental space.

On one side there is lack, on the other side there is saturation. Seeing this opportunity, Chinese mobile phone manufacturers poured into the Indian market early for layout. After several years of development, Chinese mobile phone manufacturers have now carved up half of the Indian mobile phone market.

According to research firm Counterpoint, the Indian smartphone market shipped 43 million units in the third quarter of 2023 as the market gradually recovered.

Among them, Samsung maintained its first position in the third quarter with 7.9 million units shipped. Xiaomi moved up to second with 7.6 million units shipped, Vivo came in third with 7.2 million units shipped, and realme and Oppo (excluding OnePlus) ranked fourth and fifth with 5.8 million and 4.4 million units shipped, respectively.

In addition to the "temptation" of the huge market space, domestic mobile phone manufacturers can better "destock" when they enter India.

Due to the fierce competition in China, the product and technology update iteration speed of manufacturers is too fast, so it is easy to cause some components to not keep up with the market demand, resulting in inventory. The development of overseas markets such as India, where the mobile phone industry is immature, also means that Huami OV can better reduce inventory pressure.

In addition, mobile phones, as the core smart terminals, can also drive the development of a series of IoT devices for manufacturers.

Not only has to be constantly "looted", but also has to grasp the "future", India has become a love-hate existence for Chinese mobile phone manufacturers. But no matter what the future holds, one thing is certain, as long as the core technology is always in your own hands, all problems will be solved.