Behind the advance and retreat of Chinese mobile phones in India

 　　"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.

　　Although the output value of India's electronics industry has grown rapidly, reaching US$75 billion in fiscal years 2019-2020, there is still a long way to go before the target of US$300 billion in fiscal years 2025-2026. More importantly, China is still the leader of India's mobile phone industry. "The Great Rear".

　　"If you want to gain access to the Indian market, you must help India develop its local mobile phone industry." Li Nan believes that localization of the supply chain is inevitable, just like Apple's supply chain in China also needs to be localized. If you want to expand in the local market, You can't just want other people's markets, but don't help them develop their industries. This is a normal business exchange.

What are the opportunities for Chinese mobile phones to go overseas?

　　"Chinese-funded mobile phone companies have not done a good job in understanding local laws and regulations, cultural and religious customs in India, and the Indian government has not provided much guidance for foreign-funded companies to land, and Chinese-funded companies also lack relevant talents, resulting in more companies. There is no systematic way to deal with the problem after the case occurs." Yang Shucheng believes.

　　With the fermentation of this round of tax investigations, the departure and retention of Chinese-funded mobile phone companies has become the focus. Especially in late July, Honor CEO Zhao Ming once stated that "the Honor team has withdrawn from India." He said that Honor's team that had been operating in India for a long time a few years ago has withdrawn, and is currently launching related businesses through local partners.

　　"Actually, it is not suitable for Honor to talk about whether to withdraw from the Indian market. When it was still in the Huawei system, Huawei and Honor had 'three in and three out' in the Indian market. After the tax investigation, I have communicated with my peers in India. For brands that have achieved success in the Indian market, such as Xiaomi, OPPO, vivo, realme, etc., their strategies in the Indian market will not change.

　　Four manufacturers, Xiaomi, OPPO, vivo, and realme, account for more than 60% of the Indian market share, while Chinese-funded mobile phone companies have stably accounted for more than 70% of the Indian market share in the past three years. Yang Shucheng also believes that Chinese-funded mobile phone companies with a high market share in India will not easily give up this market, because the space and demographic dividends of the Indian mobile phone market are obvious.

　　The Indian market is indeed attractive enough to make it the first destination for Chinese-funded mobile phone companies to collectively go overseas in 2014. Today, Chinese mobile phone manufacturers have been reluctant to leave India, especially when the global smartphone market is at a slump.

　　According to data from Canalys, in the second quarter of 2022, global smartphone shipments decreased by 9% year-on-year to 287 million units, and shipments in the Indian market in the second quarter also fell by 5% month-on-month to 36.4 million units, but Sun Yanbiao, chairman of Chaodian Think Tank. Telling "China News Weekly" that in the future, only the Indian market may maintain growth in the global smartphone market.

　　India has now passed the time when a large number of feature phones are converted to smart phones. In recent years, shipments of about 150 million smartphones and 100 million feature phones are in the climbing stage of smartphone shipments. Last year, the number of smartphones exceeded 160 million. Taiwan's shipments have become the second largest smartphone market after China.

　　"India has a population of 1.4 billion, and smartphone shipments will eventually climb to China's current level." Yang Shucheng believes that it is entirely expected that the annual shipments will reach 250 million to 300 million units in three to five years. The first level has approached China's current sales, but the unit price is still not comparable to China's.

　　Li Nan also believes that the biggest uncertainty in the Indian market is the growth of national income.

　　According to IDC data, in the first quarter of 2022, the average selling price of a smartphone in India is $211, which is lower than the global level of $402. Industry insiders compared to reporters that the current average price of smartphones in India is in the price range of 1,000-1,500 yuan, while China can reach the price range of 2,500-3,000 yuan. There is still a difference of about 1,000 yuan between the two. "Therefore, for mobile phone manufacturers, not only the growth of shipments in the Indian market can be expected, but also the price of a single machine is also climbing."

　　Compared with India, some markets with high penetration rates of Chinese mobile phone manufacturers are facing greater challenges. Uncertainty, such as Africa, insiders told reporters that this uncertainty mainly comes from the level of economic development.

　　More than 99% of its business comes from overseas, especially the financial status of Transsion, which occupies nearly half of the African market share, can largely reflect the situation in the African market. In the first half of this year, its revenue increased slightly by 1.12% year-on-year. Over 30% of the growth rate. One of the important reasons is that affected by the epidemic, the construction of 4G networks in Africa has slowed down, which has affected the demand for smartphones. In the second quarter of this year, according to Counterpoint statistics, smartphone shipments in the Middle East and Africa fell by 7.8% to 38 million units.

　　Transsion also hopes to make breakthroughs in South Asia. Although the market share in Pakistan and Bangladesh has reached 36.8% and 19.7%, the market size of the two countries is still limited, and Transsion, which entered the Indian market in the second half of 2016, has not yet achieved Breakthrough, only ranked sixth with a market share of 6.9%.

　　In the past and the foreseeable future, India will still be the most "rolled" overseas market for Chinese mobile phone manufacturers. Realme has positioned India as the second million-dollar market outside China, but Xu Qi, vice president of realme, said that at present, the Indian market is still a very large market and an important market for realme, "but realme The globalization of China is very critical, and we will not put all our eggs in one basket."

　　"Meizu avoided the Indian market, where Chinese manufacturers were more competitive, and deeply cultivated the Eastern European market. In Russia and Ukraine, it also achieved the second largest sales volume after Samsung. At the beginning of the overseas market, it chose to test the water in many markets, and finally chose the Eastern European market to deepen its cultivation. Avoided introspection with other Chinese brands." Li Nan told reporters.

　　"China's mobile phone industry is very strong in terms of products and sales." Yang Shucheng analyzed to reporters the key to the success of Chinese-funded mobile phone companies in India, that is, transforming China's successful experience and copying it to India. "For example, Oppo and Vivo still break through in the Indian market with offline channels that have been successful in China. Another example is Xiaomi, which basically copied the successful model in China, entered the Indian market through online channels, and cooperated with low-price strategies. But At that time, Huawei wanted to copy the domestic strategy of 'holding high and playing high' and rushing into the Indian market with high-priced products, which is obviously not in line with reality."

　　"Coming to a developing country market like India, Chinese mobile phone manufacturers are basically repeating what happened in China. The story of the story." Li Nan believes that, for example, the choice of online and offline channels after going overseas, for China's powerful mobile phone manufacturers to go overseas, they all have strong online and offline channel development capabilities, and only need to be stationed in different teams. You can enter different markets. The penetration rate of e-commerce in different markets is not the same. For example, with the rise of lazada, the penetration rate of e-commerce in the Southeast Asian market has continued to increase. However, in Eastern Europe, there has been a lack of reliable e-commerce platforms for a long time, so it needs to rely more on offline.

　　In fact, including India, the markets with high penetration rate of Chinese mobile phone brands are mostly developing countries, but the overall volume in developed markets such as Europe and the United States is still relatively small. Counterpoint has counted the United States, the United Kingdom, Germany, Japan and other developed countries. The five mobile phones with the highest market share are all owned by Apple and Samsung. For example, in the second quarter of 2022, Apple and Samsung will firmly occupy nearly 80% of the US market.

Models pose for a group photo with the OPPO F1 Plus model during a launch event for OPPO in New Delhi, India, April 5, 2016. Figure/Visual China

　　"When Chinese mobile phone manufacturers go overseas, the first choice they face is whether to target the markets of developed countries or the markets of developing countries, such as Africa, South Asia, Southeast Asia, Eastern Europe, etc. For the latter category, Chinese mobile phone manufacturers are using existing The accumulated strength is 'playing the time difference'." Li Nan said frankly that the strategy of "playing the time difference" can almost ensure the success of Chinese mobile phone manufacturers in developing markets.

　　Now, Chinese mobile phone manufacturers are making a new round of selection. Just when they announced the withdrawal of the team from India, Zhao Ming regarded this year as the first year of glory in the global market. For example, for products with US$99, US$149, and US$199, Honor still insists on the high-end strategy of building brand and quality when going overseas. The product listed in Europe this year is the Magic4 Pro at 1,099 euros.”

　　An industry insider told reporters When analyzing the opportunities for Chinese mobile phone manufacturers in the overseas market in the future, it is believed that it will still be the "high-end market". "After all, after Huawei leaves, the overseas high-end phone market for Chinese manufacturers is almost blank."