Respect Laws Or Face Music: A Reality Check For Chinese Companies On Their Regulatory Gripes In India

Chinese consumer electronics giant Xiaomi's recent claim that foreign companies are fearful of establishing bases in India is not grounded in reality.

In response to a query by the Information Technology Ministry on development of India’s component manufacturing sector, Xiaomi has said that component suppliers are apprehensive about setting operations in India.

In the letter, Xiaomi India president Muralikrishnan B said that companies of Chinese origin are more prone to such challenges. He also asked India to work on “confidence building” measures.

This comes just months after Xiaomi was subject to scrutiny by Indian authorities. In April 2022, Enforcement Directorate (ED) seized Rs 5,551 crore of funds from the company for allegedly sending “illegal remittances” in violation of Foreign Exchange Management Act.

It is not the only Chinese company under scrutiny in India.

In July 2022, the ED had conducted searches against Vivo, another Chinese tech giant, at over 40 locations across the country in connection with a money laundering case. According to ED, Vivo illegally transferred Rs 62,476 crore to China. ED arrested four people and a charge sheet was filed in December 2023.

Apart from Xiaomi and Vivo, other Chinese companies like ZTE, Huawei, One Plus and Lenovo have also been subjected to scrutiny over alleged financial irregularities.

But this hasn't hurt their fortunes in India.

Despite regulatory actions against BBK Group, China's top mobile phone manufacturer, maintained its leadership in the Indian smartphone market in 2022-23, with revenue of Rs 81,870 crore, albeit a slight decline of over 2 per cent year-on-year. This revenue encompasses sales from five BBK Group brands: Oppo, Vivo, OnePlus, Realme, and iQoo.

In fact, as pointed out by market tracker Counterpoint Research, the market share of Vivo, Oppo, and OnePlus increased by up to two percentage points in calendar year 2023 compared to the previous year, while Xiaomi and Realme showed year-on-year improvement in the October-December quarter of 2023.

Notably, Xiaomi reclaimed its position as the market leader in India in the last quarter, surpassing Samsung after four consecutive quarters.

Moreover, despite regulatory action against some Chinese brands, there seems to be little to no apprehensions among companies looking to shift their bases in India.

Foxconn, the Taiwanese supplier to Apple, currently operates an iPhone factory in Tamil Nadu. It has also expanded its base in Karnataka with a whooping investment of $1.67 billion.

In December 2023, it got approval to invest $1 billion more in India for manufacturing Apple products. Many other Apple suppliers, many of which are diversifying away from China, are choosing to set up factories in India — US gorilla glassmaker Corning, an Apple supplier which also has a presence in China, is an example.

Apple's iPhone production in India is set to grow to over 18 per cent by FY25, a significant rise from the 7 per cent recorded in FY23, driven mostly by the Narendra Modi government's production-linked incentive scheme.

Google too has said that it will manufacture its flagship Pixel phones in India. Similarly, other companies like Samsung, LG are also rapidly expanding their bases in India.

Clearly, these companies do not seem to share Xiaomi's concerns.

However, while Chinese companies are complaining about the business environment in India, it is in their country that foreign firms regularly face trouble.

The Chinese Communist Party (CCP) ensures that the domestic industry always has an edge over foreign players using various non-tariff barriers. Time and again, Chinese authorities tend to put in place new demands in the name of corruption and national security. Even consulting and advisory firms like Mintz and Bain have been subject to crackdown.

In July 2023, the CCP revised ant-espionage laws, broadening the definition of espionage. According to the US National Counterintelligence and Security Centre, the law gave more access and control over corporate data to Chinese establishments.

In 2023, the European Union Chamber of Commerce did a survey on business confidence in China. Nearly 64 per cent of respondents said that doing business in China became more difficult in 2022.

In fact, a recent survey in Japan showed India has surpassed China to claim the top ranking for Japanese manufacturers, while China has slipped to third place.

Moreover, companies have faced trouble for their political outlook in their home countries. In October 2023, China launched probes for tax evasion and violation of land use against Foxconn.

It is widely believed that the investigation was launched to stop Foxconn founder Terry Gou from running in the presidential election of Taiwan. 

One of the fundamental rules of doing business in foreign countries is adhering to local laws and contributing to the development of the geography in which the business is located. Chinese firms need to check both boxes for their own good or face the music.