On Oct. 6, an Indian High Court declined to lift a freeze on $676 million of Xiaomi’s assets, dealing a blow to the company’s operations in India. The company, the world’s third-largest smartphone manufacturer, said the court’s move had “effectively halted” its operations in the Indian market, according to a Reuters report.
The move comes amid increasing troubles for Chinese companies in India’s smartphone market. Xiaomi is among several top Chinese smartphone makers who have been charged with money laundering and tax evasion in India over the past year.
Xiaomi entered the Indian market in 2014. In late 2017, it surpassed Samsung and became the largest smartphone supplier in the Indian market. However, Xiaomi’s market performance in India has fallen sharply since the beginning of this year due to alleged infractions of Indian law.
The logo of smartphone manufacturer Xiaomi is seen inside the company's offices in Bengaluru, India, on Jan. 18, 2018. Abhishek N. Chinnappa/Reuters
According to a study by global industry analysis firm Counterpoint, Xiaomi’s second-quarter market share in India was 19 percent, down from 28 percent in the same period last year, although it retains its market-leading position.
On Jan. 5, Xiaomi India received a fine from Indian tax authorities demanding the recovery of customs duties owed from April 1, 2017, to June 30, 2020, Xiaomi admitted in its latest financial report (pdf). The amount owed was 6.53 billion rupees ($84.37 million).
In February, the Indian Enforcement Directorate (ED), a financial crime-fighting agency, began an investigation into the company’s dealings.
On April 29, Xiaomi India was accused of illegally transferring money out of India “under the guise of royalties,” and the Indian financial investigation agency froze the equivalent of 55.5 billion rupees ($725 million) of the Chinese smartphone maker’s funds.
The agency accused Xiaomi India of lacking commercial substance in remittances, violating relevant provisions of the Foreign Exchange Control Act of India, and providing misleading information to banks.
Xiaomi Denies Wrongdoing
Xiaomi India denied wrongdoing. It told the court that more than 84 percent of the assets confiscated by the enforcement agency were used to make royalty payments to U.S. chipmaker Qualcomm for the right to use its intellectual property, according to Business Standard, an Indian English-language newspaper.
After hearing the arguments, the court said it would pass a temporary unblocking order if the company could provide a bank guarantee sufficient to cover the value of the frozen assets.
In response, Xiaomi said that providing such bank guarantees would affect its ability to pay wages, make inventory purchases, and maintain operations before the Hindu festival of Diwali—India’s peak consumer season. Instead, Xiaomi offered to set up an escrow account to start making payments from the company’s smartphone sales from January.
However, the court insisted that a bank guarantee would be required to lift the freeze order.
Xiaomi’s setbacks in the Indian market this year have negatively impacted the company’s share price.
Its share price on the Hong Kong Stock Exchange dropped from HK$18.6 (about $2.37) per share at the beginning of the year to HK$9.25 (about $1.18) per share on Oct. 21, a loss of more than half of its market value.
More Allegations Against Major Chinese Smartphone Makers
Indian authorities have accused other major Chinese smartphone makers of tax evasion, notably Vivo, Oppo, and Huawei.
In July, the ED blocked 119 bank accounts containing 4.65 billion rupees ($58.75 million) linked to Vivo’s Indian business on charges of tax evasion.
A smartphone screen displays the logo of Vivo telecom company on a Vivo website background in Rio de Janeiro, Brazil, on Nov. 3, 2021. Mauro Pimentel/AFP via Getty Images
The agency said that Vivo India transferred 62.47 billion rupees ($7.9 million), or almost 50 percent, of its total sales proceeds outside the country, mainly to China, in order to show apparent losses and avoid paying taxes in India.
It conducted searches in 48 locations belonging to Vivo India and 23 related entities on July 7 after an initial probe found that shareholders used “forged identification documents and falsified addresses at the time of incorporation,” according to an ED statement (pdf).
On Aug. 3, India’s Directorate of Revenue Intelligence (DRI) said it found that Vivo had evaded 22.1 billion rupees ($280 million) worth of taxes in India, accusing the company of “wilful misdeclaration” in the description of certain imported items.
On July 13, the DRI issued a duty notice to Oppo, another Chinese mobile phone maker, demanding the company re-pay 43.9 billion rupees (about $551 million) in evaded taxes.
The logo of smartphone manufacturer Oppo is displayed at the MWC (Mobile World Congress) in Barcelona on March 2, 2022. Josep Lago/AFP via Getty Images
Chinese telecom giant Huawei was also investigated for tax evasion in India in March.
India’s Ministry of Finance said the telecom group did not account for income of 4 billion rupees ($52 million) on its books and failed to justify 4.8 billion rupees in expenses, according to a Reuters report.
Indian income tax authorities reportedly raided Huawei’s office premises and the residences of senior executives in multiple Indian cities.
Increasingly Difficult Environment for Chinese Companies
A recent Deloitte report highlighted the massive potential of the emerging Indian smartphone market. The report projected that India will have 1 billion smartphone users by 2026 and will become the world’s second-largest smartphone manufacturer in the next five years.
However, Chinese smartphone companies face an increasingly difficult operating environment in India, with the recent wave of litigation threatening to erode their share of the Indian market.
Further, in June, the Indian Department of Telecommunications mandated that its telecom operators exclude the use of equipment and products from Chinese suppliers for all purposes. That includes upgrades and expansion, India’s Economic Times reported.
India has been taking a tough stance against China-based companies amid heightened border tensions over the past two years. A June 2020 skirmish in the disputed Himalayan border region left 20 Indian soldiers dead and saw hundreds of thousands of troops placed along the border. Despite some disengagements, tensions have remained high.
Chinese Apps Banned in India Over Security Concerns
In February, the Indian government issued an order banning 54 Chinese mobile applications that it says constitute a threat to the country’s national security, according to local reports.
Members of the Working Journalists of India (WJI) hold placards urging citizens to remove Chinese apps and to stop using Chinese products, during a demonstration against the Chinese newspaper Global Times, in New Delhi, India, on June 30, 2020. Prakash Singh/AFP via Getty Images
The Indian Ministry of Home Affairs warned that the applications had the ability to collect sensitive user data through phone cameras and microphones for espionage and surveillance activities.
The move was the latest in a series of similar bans instituted amid the protracted border dispute between the two sides. Overall, the country has banned over 321 applications.
The banned applications range from mobile games to video chats and selfie camera apps from Chinese companies such as Tencent, Alibaba, and NetEase. Some of the apps are clones or rebrands of apps that were banned previously.
Last year, India retained a ban on 59 Chinese mobile applications, including ByteDance’s popular video-sharing app TikTok, Tencent Holding’s WeChat, and Alibaba’s UC Browser, after giving the app companies a chance to respond to questions on whether they censored content, worked on behalf of foreign governments, or lobbied influencers.
A government panel looking into the app ban decided, after reviewing the responses, that there would be no change in the country’s position, as the ban was in the interest of India’s national security and sovereignty, a source said.
Reuters contributed to this report.
Anne Zhang
Author
Anne Zhang is a writer for The Epoch Times with a focus on China-related topics. She began writing for the Chinese-language edition in 2014.
