"Xiaomi has successfully unfrozen more than $700 million in frozen funds."
On August 19, at Xiaomi's second-quarter financial report analysis meeting, Xiaomi Group partner and president Wang Xiang made a comment on the latest progress of Xiaomi's tax investigation in India. In response, he admitted that some of the frozen funds are still being negotiated, and Xiaomi's business in India is still going on normally.
This is a microcosm of the collective setbacks that Chinese mobile phones have encountered in India this year. Since the end of 2021, news of Chinese-funded mobile phone companies encountering tax investigations in India has continued to come. Last year, India banned a series of Chinese apps. This year, it is the turn of Chinese-funded mobile phone companies.
The complex status quo of Sino-Indian relations and India's ambitions for its own economic development have changed India's attitude towards Chinese-funded mobile phone companies that have occupied more than 70% of the domestic mobile phone market. A mobile phone maker is reluctant to leave.
Facing the Indian market, Chinese-funded mobile phone companies are facing great temptation and great uncertainty at the same time. The doubts of the outside world are, in today's increasingly fragmented world economy, how far can Chinese-funded mobile phone companies go in India?
Encountered India's "Census"
On August 3, local time, the Directorate General of Revenue Intelligence (DRI) of India issued an announcement that, through a search of the factory of vivo India, it was found that it made false declarations to obtain tax-free concessions when importing certain products used to manufacture mobile phones, totaling 221.7 100 million rupees, vivo India has voluntarily paid the 600 million rupee tariff difference.
Just a month ago, India's Enforcement Directorate raided vivo India and 23 related companies for allegedly violating the Prevention of Money Laundering Act, accusing it of remitting nearly half of Rs 12.5 trillion in sales out of India for the purpose of It caused huge losses for vivo India and avoided paying taxes.
Two tax investigations were encountered within a month, and the experience of vivo is the epitome of what Chinese-funded mobile phone companies have encountered in India this year. At the end of 2021, Xiaomi and OPPO were raided by the Income Tax Department and were accused of multiple tax issues. In the following six months, Xiaomi, Huawei, OPPO, vivo and other Chinese-funded mobile phone companies have encountered different departments of the Indian government successively. tax investigation.
Most of the allegations are similar. For example, DRI mentioned the problems of vivo in the announcement. It has also been used to accuse OPPO of tax evasion. DRI said that OPPO deliberately mischaracterized when importing mobile phone parts, and obtained a tariff reduction of 29.81 billion rupees. In order to encourage mobile phone companies to relocate their component production lines to the local area, India has set different tariffs for different mobile phone components.
"'High-standard legislation, general violations, selective enforcement' is a common reality in the operation of Indian laws. India's legal framework makes it difficult for companies to achieve full compliance operations. Due to India's relatively 'small government', manpower and Insufficient energy, many times, compliance obligations are simply and rudely pushed to enterprises." Li Qin, consultant of the China Affairs Department of Daheng Zhucheng Law Firm in India, told China News Weekly that the Indian government focuses on "taking care" of foreign-funded enterprises, not only Chinese-funded enterprises. , European and American companies in India often encounter law enforcement inspections from the government, and there are long legal disputes between many foreign-funded companies and the Indian government.
Still, the six-month delay in the tax investigation against Chinese-funded mobile phone companies is still unusual.
"For Chinese-funded mobile phone companies in India, this round of tax investigation is a 'census', and tax investigations on other foreign-funded companies and industries are more of a 'spot check'." Yang Shucheng, secretary-general of the Indian Chinese-funded Mobile Phone Enterprise Association, told " China News Weekly.
Xiaomi, OPPO, vivo, etc. are only a corner of the Chinese-funded mobile phone companies that have encountered tax investigations. Yang Shucheng recalled that this round of tax investigation began at the end of 2021, peaked in May and June this year, and leveled off in August. Only a few cases are still under investigation, and the "census" has ended. According to his estimate, about 60% of Chinese-funded mobile phone companies have been subject to tax investigations, including not only well-known mobile phone manufacturers, but also a large number of mobile phone supply chain companies.
A number of interviewees from Chinese-funded mobile phone companies in India believed that this round of tax investigations had a lot of impact on the companies. The heads of some companies were directly taken away for investigation, and the accounts of some companies were closed, which directly led to customs clearance and salary payment. At the same time, companies are also required to pay hefty fines. However, they all emphasized that this round of tax investigations did not touch the root of Chinese-funded mobile phone companies in India.
At the end of April, the Indian Law Enforcement Bureau seized 55.51 billion rupees of assets of Xiaomi India, and Xiaomi India subsequently sued the court. The court extended the unfreezing period of its bank account many times, and relaxed the use of the account, which can be used for foreign remittances. A person from a Chinese-funded mobile phone company told China News Weekly that compared with vivo, Xiaomi and OPPO have gone through more than one tax investigation and accumulated some experience in dealing with them.
Yang Shucheng also told reporters that India's appeal process is relatively long, but on the other hand, it is more difficult to actually implement the fine. "Indian society has many gray areas, and some problems can be solved through negotiation."
Compared with the tax investigation, Yang Shucheng is more worried about the issuance of visas, calling it "the primary difficulty faced by Chinese-funded mobile phone companies in India." "Because of the principle of reciprocity, the number of visas issued by India is extremely limited. However, Chinese-funded mobile phone companies need a large number of management and technical personnel to come to India. They need to use personal relationships to open up joints, and spend a lot of money and time to get a limited number of visas."
At present, there are thousands of people who need to obtain visas. At the peak of 2019, there were about 10,000 Chinese management and technical personnel in the Indian mobile phone industry chain. At present, there are only about 1,000 people left.
Tax investigations and visa restrictions have been interpreted as India's no longer friendly towards Chinese-funded mobile phone companies. Behind this is India's vigilance against Chinese-funded companies. In April 2020, India issued a new FDI policy, requiring countries bordering it to go through a review before investing in India, with obvious implications for Chinese investment. In 2021, non-financial direct investment by Chinese companies in India will drop by nearly 70%, leaving only $63.18 million.
After the release of the new FDI policy, for more than two years, there was no clear news about the relevant approval developments. Only recently did the Indian media report that a small number of FDI applications from China have been approved.
"The new FDI policy restricts equity behavior, that is, new companies, equity transfers, joint ventures with Indian companies, and even existing Chinese-funded Indian companies to increase capital and expand shares. Even some projects may be contracts signed in 2019, but suddenly affected by the closing of the transaction. The restrictions of the new FDI policy make them only apply for FDI licenses.” Li Qin told reporters that even though it has recently been reported that dozens of Chinese projects have obtained FDI licenses, the projects that actually set up new companies in India may not Too many, which can also reflect the impact of India's new FDI policy on Chinese investment.
The aforementioned sources of Chinese-funded mobile phone companies in India revealed that after the tax investigation, mobile phone companies will slow down their investment in India even more.
Obviously, Chinese-funded mobile phone companies in India are facing a new round of games.
Gaming India's Industrial Policy
"Chinese-funded mobile phone companies have been developing in India for more than 7 years, and the other party will also evaluate them from three dimensions: taxation, driving GDP growth, and driving employment." Yang Shucheng tried to understand this round of tax investigations against Chinese-funded mobile phone companies from the perspective of India, " Judging from the results of India's assessment, Chinese-funded mobile phone companies have indeed solved some of the employment problems for India, absorbing about 400,000 jobs, but it is considered that they have not brought enough tax revenue, and their role in driving GDP growth is also very limited."
Li Qin believes that India has a "dichotomous" attitude towards Chinese investment: that is, to distinguish Chinese automobiles, machinery manufacturing, electronics, etc. that set up factories in India, which require a lot of investment and can create jobs, and cannot be said to be withdrawn. Industry investment, and "going lightly", even without setting up an entity in India, it can attract Internet investment of millions or even tens of millions of users.
"The latter type of investment is directly impacted and affected by the Indian government's policies, and although industrial investment has been negatively affected by the epidemic and the customs clearance and import restrictions imposed by the Indian government, the Indian government understands that such manufacturing enterprises can bring employment and advanced Its production and management experience matches the Indian government's 'Made in India' plan, so most of the projects approved by the Indian government's FDI are also such production-oriented enterprises." Li Qin said.
From the perspective of the "dichotomy", Chinese-funded mobile phone companies should have been welcomed.
In 2014, Chinese-funded mobile phone companies such as Xiaomi, OPPO, and vivo entered the Indian market. When Modi became the Prime Minister of India, he proposed the "Made in India" initiative plan to increase the proportion of manufacturing in GDP from 15% to 25% . The following year, the Phased Manufacturing Plan (PMP) was passed, which forced companies to shift production to India in the form of tariffs.
According to the vivo 2021 India Impact Report, after entering the Indian market in 2014, vivo responded to the "Made in India" call to build a factory in India, and in 2018 bought land to expand the factory again. The Indian factory has 10,000 employees, and the annual productivity will increase from the current one. 50 million units will gradually rise to 60 million units. In terms of supply chain, 95% of vivo battery supply chain currently comes from India. In 2023, the local supply chain of displays is expected to account for 60%. In 2024, it is expected that the proportion of the local supply chain of chargers will increase from the current 60% to 75%.
According to Yang Shucheng, one of the main reasons for Chinese-funded mobile phone companies to start production in India is that tariffs have increased the cost of purchasing in China. The tariff on mobile phone imports is 25%, and the tariff on supply chain products is 15%. At present, some components and chips are still It is zero tariff, but some key accessories, such as screens, cameras, batteries, chargers, etc., are subject to a 15% tariff. "These tariff-increased raw materials and component production capacity are the main force transferred to India."
In addition to tariffs, demographic dividends are also a reason for Chinese-funded mobile phone companies to transfer production capacity. "At present, the monthly salary of a general worker in India is about 1,000 yuan, but in China it will reach 3,500 to 4,000 yuan." Yang Shucheng told reporters.
Talking about the convenience of Chinese-funded mobile phone companies to set up factories in India, the aforementioned Chinese-funded mobile phone companies told reporters that India is different from Vietnam and other popular industrial transfer destinations in recent years. In a federal country, the central government has limited powers, and each region has its own policies, unlike Vietnam, which can achieve tax exemptions for three and five for half. "Including OPPO, vivo, and several Chinese-funded mobile phone supply chain companies, a total of seven or eight companies have purchased land to build factories in India. Indian land is privately owned, with a lifespan of 99 years. It needs to be purchased from individuals. In terms of coordination, the process is often complicated and lengthy."
"The low-tech part of the entire Chinese mobile phone industry chain has already been deployed in India, and local Indian manufacturers are also using the industry chain that has migrated to the local industry chain to cultivate their own thousand-yuan phones. Brand." Sun Yanbiao, chairman of Chaodian Think Tank, told China News Weekly.
Obviously, India hopes to give more opportunities to local companies. After all, in 2014, when Chinese-funded mobile phone companies entered the Indian market intensively, the three major Indian mobile phone brands Micromax, Intex, and Lava were the three largest local mobile phone brands in India. They can no longer be found in the top five market share.
"The particularity of the Indian market is that other developing countries will not regard China as a competitor, so they will not set up many policy obstacles for Chinese mobile phone manufacturers, but India obviously does not think so." Li Nan, former vice president of Meizu, told China News weekly".
After 2020, the "Make in India" initiative changed from pursuing import substitution to "self-reliance". The "Production Linked Incentive" (PLI) scheme was launched that year, supporting the production of 14 industries with 19.7 trillion rupees, including electronic equipment. Support local manufacturing companies in India.
Previously, through tariffs, import restrictions, and local production subsidies, Chinese manufacturers were forced to increase their weight in India. In Li Qin's view, this strategy of supporting the local industrial chain is only the "second-best option" of the Indian government. "The best plan is to hope that China Enterprises have joint ventures with local Indian enterprises and are deeply bound, which can avoid 'annoyances' such as government procurement restrictions and boycotting Chinese products, but this will inevitably reduce the autonomy of Chinese investors, which is difficult for Chinese enterprises to accept, and in reality It is also very difficult to find suitable and reliable partners for cooperation and joint ventures."
In PLI's support list, there are few Chinese-funded mobile phone companies. "PLI has not blocked all Chinese-funded mobile phone companies, and Chinese-funded mobile phone companies are also applying, but at present, there may be more Samsung and Apple supply chain companies." Yang Shucheng believes that the purpose of PLI cannot only be understood as support Indian local enterprises, of course, supporting the local industrial chain is the future trend, but it still needs a long process. "Just as foreign-funded companies came to China after the reform and opening up, local Chinese companies have also gone through the learning process, but in a relatively short period of time. At present, there are indeed some Indian companies learning from Chinese-funded companies in India, but it will take time."
He believes that Chinese-funded mobile phone companies still have a time window in India, "It will take 15 to 20 years for India to reach the level of China's current mobile phone industry chain. In the manufacturing process, local Indian companies are in their infancy, from research and development, technology, management to investment. Lagging behind Chinese-funded enterprises, there are very few or even none that have really entered the mobile phone industry chain."
Recently, the news that the iPhone 14 will be produced in India has heated up the topic of industrial chain transfer again, but the current reality is that from 2015 onwards It is convenient to use taxation and other means to promote the transfer of the mobile phone industry chain in a disguised form, but at present, even the transfer of the mobile phone industry chain is relatively limited. Yang Shucheng told reporters that the local procurement of raw materials and components in India is only about 15%, and it is expected to reach about 20% this year. Most of the raw materials and components are imported from China, and even the assembly process is based on Chinese-funded factories in India. host.