China Calls for Fair & Non-discriminatory Environment for its Firms in India

China on Monday, 9 May 2022, expressed hope that India will provide a "fair, just and non-discriminatory environment" to its companies as it reacted guardedly to reports of top executives of Chinese smartphone maker Xiaomi faced a probe by the Enforcement Directorate regarding its remittances abroad.

"China is closely following the situation," Chinese Foreign Ministry spokesman Zhao Lijian told a media briefing here, responding to a question on top Xiaomi executives' allegation of "physical violence and coercion" by the Enforcement Directorate (ED) in its investigations into its remittances.

"We hope India will provide a fair, just, and non-discriminatory business environment for Chinese companies, conduct investigation, and law enforcement in accordance with laws and regulations so as to increase the confidence of global investors," Zhao said.

He said the Chinese government always asks its companies to abide by laws and regulations while doing business overseas.

"But at the same time it firmly supports the Chinese companies in upholding their lawful rights and interests," he said.

Xiaomi is accused of making illegal remittances abroad "in the guise of royalty" payments.

The ED on Saturday rejected as "baseless" the allegations that the statements of Xiaomi India officials, the wholly-owned subsidiary of Chinese mobile manufacturing company Xiaomi, were recorded "under coercion", saying the charges were an afterthought.

The federal agency was responding to certain news reports that said Xiaomi alleged in a recent filing before the Karnataka High Court that its top executives were threatened with "physical violence and coercion" during their questioning by ED investigators in Bengaluru.

The ED issued a statement saying it was "a professional agency with strong work ethics and there was no coercion or threat to the officers of the company at any point of time".

"The allegations that the statement of the officials of Xiaomi India was taken under coercion by ED is untrue and baseless," the ED statement said.

The development comes in the backdrop of the ED passing an order on April 29 to seize Xiaomi India's funds worth over Rs 5,551 crore over the alleged violation of the Indian foreign exchange law (Foreign Exchange Management Act).

The Karnataka High Court earlier this week stayed this ED order.

Xiaomi is a trader and distributor of mobile phones in India under the brand name MI.

Enforcement Directorate Denies Xiaomi’s Charges of Coercion during Forex Probe

The Enforcement Directorate has denied allegations that Xiaomi executives were coerced into giving statements implicating the Chinese smartphone manufacturer during its forex violations probe against the company.

“The ED denies allegations made by Xiaomi India that statements of its officials were taken under coercion as untrue and baseless,” a statement by the central agency said on Monday, 9 May 2022.

The statement came in response to a Reuters news report that quoted the Chinese newspaper Global Times as criticising the ED’s actions. “India should stop its ‘regulatory assault’ on Chinese companies,” the news agency quoted the Global Times as having written.

Reuters reported on Saturday that Xiaomi told an Indian court that its top executives had faced threats and coercion during questioning by the Enforcement Directorate.

According to Reuters, the Global Times said in an opinion piece that the uncertainty surrounding Xiaomi’s “regulatory predicament should raise a red flag for India” and asked New Delhi to stop its “regulatory assault on Chinese companies”.

“The impression that Chinese and other foreign companies could be intentionally targeted and suppressed isn’t something good or favourable for India,” the paper said. “It is of great importance for India to maintain normal and effective communication and coordination with Chinese investors.”

Last month, the ED seized Rs 5,551.27 crore belonging to Xiaomi Technology India Private Limited under the provisions of the Foreign Exchange Management Act, 1999. Xiaomi India is a wholly owned subsidiary of the China-based Xiaomi group.

According to the ED, the seized amount was lying in the company’s bank accounts. The agency initiated an investigation in connection with the alleged illegal remittances made by the company in February. Earlier last month, the agency questioned Manu Kumar Jain, Xiaomi’s global vice-president, in the case.

In a statement, the ED had said, “The company started its operations in India in the year 2014 and started remitting the money from the year 2015. The company has remitted foreign currency equivalent to INR 5,551.27 crore to three foreign [sic] based entities, which include one Xiaomi group entity, in the guise of royalties. Such huge amounts in the name of royalties were remitted on the instructions of their Chinese parent group entities. The amount remitted to other two US-based unrelated entities was also for the ultimate benefit of the Xiaomi group entities.”

“Xiaomi India procures completely manufactured mobile sets and other products from manufacturers in India. Xiaomi India has not availed of any service from the three foreign [sic] based entities to whom such amounts have been transferred. Under the cover of various unrelated documentary façades created amongst the group entities, the company remitted this amount in the guise of royalty abroad, which constitutes a violation of Section 4 of the FEMA. The company also provided misleading information to the banks while remitting the money abroad,” the ED statement said.