Earlier this month, the Indian government announced it would restrict purchases of Chinese telecoms equipment on national security grounds. The decision has sparked outrage in Beijing and has created tension among mobile operators in India, which need equipment to serve the demands of their rapidly expanding industry.
Industry experts say the ban will drastically cut profits for Chinese telecoms companies Huawei and ZTE, which operate in the Indian market. The restriction also spells bad news for Indian mobile operators who rely on low-cost telecoms equipment from Chinese suppliers.
“The Telecom Ministry issued 12 to 14 pan-India licences last year [and] as a result, service providers are starting running to source equipment from various sources in order to meet their roll-out obligations,” Balbir Singh, a partner at DSK Legal in New Delhi told China Business Law Journal’s sister publication, India Business Law Journal. “Although the government is saying that this is not a blanket ban, and that decisions would be made on case-by-case basis, [the reality is that] imports from China have reduced significantly,” he said.
If the ban persists, Indian operators will be forced to look for alternative suppliers. This may increase their costs, especially if the equipment is imported from the West. “It is difficult for European and American manufacturers to match Chinese costs, and having [the Chinese] out of the equation means that there will be less pressure on Western manufacturers to decrease costs,” said Amit Tambe, a partner at Trilegal in Mumbai.
“It’s not really a government prerogative to interfere in matters concerning private parties, but the issue raised is one of security and that is always a tough matter to deal with,” Tambe added.
Huawei is keen to project a clean image and protect its market share in India. It insists that its Indian operations have been cooperating well with Indian government agencies. The company’s senior executives, vice-president Xu Zhijun, and president for Asia-Pacific Wang Shengli, will be meeting top security officials in India later this month to discuss the situation.
In an attempt to prove that it does not pose a security threat, Huawei has told the Indian government that it will restructure to ensure that the chairman and board of directors of its Indian operations are Indian residents. According to the Indian Economic Times, Huawei wrote in a letter to the Indian prime minister’s principal secretary that it is “not just a Chinese company” since 85% of its staff and nearly all of its research and development workforce are Indian.
Analysts are unsure of how long the ban will last, but many suggest Chinese manufacturers face an uphill battle following a series of recent measures to restrict imports. “There is certainly a political angle to this,” says Tambe. “Unless political will is changed, I don’t see this issue resolving. The Indian government wants transparency, which is difficult in the Chinese context. The question is who will blink first.”
