Chinese Tech Companies with Government Links Face Curbs

India is trying to identify Chinese technology companies with direct or indirect links to that country’s government or military, a top official said.

Such companies will face challenges in getting investment approvals, given that this could have national security implications for India the wake of the recent border hostilities, he said.

But private companies that don’t fall under this category, such as smartphone manufacturers Vivo, Xiaomi and Oppo, are unlikely to face any such hurdles to their plans to invest and expand in India, the official said.

Hurdles for Huawei, ZTE

“Nature of ownership of Chinese tech companies will be under immense scrutiny because if the Chinese army or the state is the owner or in any significant way linked to the company, then it is a situation of great discomfort,” he said.

Telecom equipment vendors Huawei and ZTE are alleged to have links to the People’s Liberation Army (PLA) and to the Chinese government, accusations that the two companies have repeatedly denied. India had thus far stayed away from taking any decision on their participation in telecom supply contracts, especially 5G deployments. But soon after the mid-June border skirmish, India decided not to allow state-run phone companies Bharat Sanchar Nigam Ltd (BSNL) and Mahanagar Telephone Nigam Ltd (MTNL) to source gear from them. “We don’t wish to allow any Chinese state-run agencies to be a part of critical infrastructure in this country as there is a direct conflict of interest here,” the official added.

Officials have said that the government is also thinking of persuading private telcos not to buy equipment from the two vendors, likely locking them out of the 5G market in India. “It is unlikely Huawei (or ZTE) will be permitted,” the official said.

The US announced new export control rules two weeks ago aimed at blocking Huawei’s chip development efforts. Under the new rules, non-US companies will have to apply for a permit to use American technology to produce Huawei designed chips.

The restrictions bring Delhi closer to Washington on the perceived threat posed by Chinese companies besides stopping them from continuing to play a significant role in the Indian market.

“The MHA (ministry of home affairs) circular in April withdrawing any Chinese FDI via the automatic route is essentially targeted at evaluating who is the ultimate beneficiary of any Chinese investment in the country--is it the Chinese state?” the official said. That notification said any FDI application from countries sharing a land border with India will need to be vetted. This followed the Chinese central bank raising its stake in Housing Development Finance Corp. That sparked fears about China picking up stocks of key companies at a time when markets are volatile due to the Covid crisis.

Another senior official told ET that the government was also evaluating the security concerns around Chinese apps and would take a call soon. “There are two issues at hand here — Huawei and ZTE have been banned for security concerns.

Our security systems and critical infrastructure cannot be run by Chinese state while we are fighting them at the border but in case of mobile handsets, the story is different,” the official said.

“These (the phone brands) are Chinese private players and with them it’s a battle on a different front. We wish to be self-reliant and to have domestic champions, but we don’t envisage a ban on these companies but of course we would like to reduce our dependence upon China.”