US crackdowns on Chinese tech groups may have run their course. But India is just getting started.
India’s regulators have taken control of the bank accounts of Xiaomi’s local unit after accusing the Chinese smartphone maker of breaching local foreign-exchange laws. The Rs55.5bn ($726mn) the anti-money-laundering agency has seized so far pales in comparison to what is at stake.
India claims Xiaomi’s local unit remitted money to three offshore entities that have ties to Xiaomi. It says Xiaomi falsely labelled these royalty payments. Xiaomi has denied this, saying the payments covered technology used in its Indian offerings.
This dispute coincides with the escalation of political tensions between the two countries, which started in 2020 after a deadly clash near the Chinese border. Since then India has blacklisted more than 200 Chinese apps, including those from Alibaba, ByteDance and Xiaomi.
Xiaomi’s case stands out. It has been by far the most successful smartphone brand in India. It accounts for a quarter of all smartphone shipment revenue. More significant is its success in the premium market. Sales of Xiaomi phones priced above $400, for which Apple and Samsung typically dominate globally, more than tripled over the past year.
In smartphones, the Indian market is crucial for growth. About 40 per cent of the population still do not own a smartphone. Sales rose 27 per cent last year, a record pace, even as the pace slowed globally. Shipments of newer 5G models rose more than 500 per cent. Plus, the average selling prices of phones have increased as India’s middle class grows.
India’s latest move marks a sharp escalation by the country’s watchdogs since December, when they raided the local offices of Chinese smartphone makers including Xiaomi. When the US banned everything from apps to network gear sales made by Chinese peer Huawei, that resulted in years of falling sales. Expect no reversal to the decline of Xiaomi’s share price, now down 50 per cent in the past year, without a clear resolution to its problems in India.