The Indian government plans to restrict Chinese smartphone brands from selling devices for less than Rs 12,000, Bloomberg reported on Monday, quoting people familiar with the matter.
The restriction, reportedly aimed at helping homegrown brands grow, hasn't been officially announced and there's a possibility that the government might use informal channels to convey the idea to Chinese smartphone makers.
However, Mint reported on Thursday that the government has no plan to restrict Chinese brands in such a manner, quoting top officials.
If this policy does indeed materialise, it will be the latest in a series of decisions that have increased the pressure on Chinese companies, following the clashes between Indian and Chinese troops in 2020.
Explained: India's War on Chinese Smartphone Makers
1. The Story So Far
After border skirmishes broke out between Indian and Chinese troops in 2020, India dialed up the pressure on Chinese firms operating in the Indian market.
Beginning June 2020, more than 200 mobile applications from Chinese providers have been blacklisted by the Indian government, including the popular short video app Tiktok.
India has also increased the financial scrutiny of Chinese smartphone companies with account freezes, raids, and allegations of money laundering.
Late April, the Enforcement Directorate (ED), responsible for enforcing economic law in India, froze Xiaomi India's assets worth over Rs 5,551 crore ($725 million), accusing the Chinese smartphone maker of illegally transferring funds abroad. The matter is now in court.
More on that here.
The government also began probing local units of ZTE and Vivo over alleged financial mismanagement. In July, the ED conducted searches at 44 places related to Vivo in several Indian states and froze hundreds of crores. This matter, too, is in court.
Expand2. What Could Be the Reason Behind This Move?
The reported plan to prohibit Chinese companies from selling phones under Rs 12,000 could be seen as another way in which the Indian government can put pressure on China in light of geopolitical tensions.
However, insiders who spoke to Bloomberg suggested that this move is aimed at kick starting India's "faltering" domestic industry.
The market share, in volume, of Indian smartphone brands like Lava and Micromax fell to 1 percent in the last six years, while that of Chinese brands jumped to 99 percent, according to research firm Techarc.
For reference, in 2015 Indian phones held 68 percent of the market share, while Chinese brands held just 32 percent. In terms of value, Chinese phones now make up about 65 percent of the market.
In the sub Rs 12,000 segment, which accounts for nearly one third of the mobile phone market, Chinese brands now have a 75 to 80 percent share, according to Mint.
Xiaomi, which rules the roost in India with a 28 percent market share, may see a five percent decline in shares if India goes ahead with the segment specific ban, according to Bloomberg estimates.
Expand3. Will This Help Homegrown Brands?
If the intention is to help Indian brands become serious competitors in the smartphone market once again, restricting Chinese brands from the lowest segment won't do much on its own, industry observer Nimish Dubey told The Quint.
"It really depends on how much the local brands choose to invest. And actually if they do invest heavily, we would wonder why they did not do so earlier to take on competition," he said.
He also pointed out that even it Chinese brands are moved out of a segment, there are other players who could give Indian brands a run for their money, like Samsung and Nokia.
"The irony is that a few years ago, Indian brands had a good standing in the market. Today they do not enjoy the same amount of goodwill. So they would need to come out with very good offerings to win over the consumer. The absence of the Chinese alone will not help," he added.
When it comes to consumers, Dubey said such a move would be "slightly odd" because getting more bang for their buck helps Indian consumers.
"At the end of the day, it should be about products and innovation. And giving users value for money. Indian brands competed successfully with the Chinese until 2016 without any help from the Government because consumers felt they were getting something," he said.
Expand4. Why Are Chinese Phones So Cheap?
Chinese brands have a warranted reputation for providing the most bang for your buck, partly due to their mass manufacturing expertise.
They have managed to flood the market with high-spec smartphones at low prices by incurring huge losses. Oppo, for example, made losses of over Rs 2000 crore in FY20, while Vivo posted over Rs 300 crore in losses.
The pandemic, and the subsequent shift to online shopping, may also have helped these companies, since they market and sell a large portion of their phones online.
Apart from that, companies from China are able to offer better tech at lower prices partly because of its judicial system.
In February, the European Commission filed a case on behalf of its members against China at the World Trade Organisation (WTO) for restricting its companies from protecting and using their patents.
It said that EU companies were being deterred from going to foreign courts to safeguard their standard-essential patents (SEPs).
China uses anti-suit injunctions to prevent companies from settling disputes outside the country. These are orders issued by a court that prevents a party from filing a case in another jurisdiction or forum.
This makes it easier for its manufacturers to negotiate lower prices for patents from European patent holders, or even use patented technology illegally, the EU says.
Read more about this here.
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)
Expand
The Story So Far
After border skirmishes broke out between Indian and Chinese troops in 2020, India dialed up the pressure on Chinese firms operating in the Indian market.
Beginning June 2020, more than 200 mobile applications from Chinese providers have been blacklisted by the Indian government, including the popular short video app Tiktok.
India has also increased the financial scrutiny of Chinese smartphone companies with account freezes, raids, and allegations of money laundering.
Late April, the Enforcement Directorate (ED), responsible for enforcing economic law in India, froze Xiaomi India's assets worth over Rs 5,551 crore ($725 million), accusing the Chinese smartphone maker of illegally transferring funds abroad. The matter is now in court.
More on that here.
The government also began probing local units of ZTE and Vivo over alleged financial mismanagement. In July, the ED conducted searches at 44 places related to Vivo in several Indian states and froze hundreds of crores. This matter, too, is in court.
What Could Be the Reason Behind This Move?
The reported plan to prohibit Chinese companies from selling phones under Rs 12,000 could be seen as another way in which the Indian government can put pressure on China in light of geopolitical tensions.
However, insiders who spoke to Bloomberg suggested that this move is aimed at kick starting India's "faltering" domestic industry.
The market share, in volume, of Indian smartphone brands like Lava and Micromax fell to 1 percent in the last six years, while that of Chinese brands jumped to 99 percent, according to research firm Techarc.
For reference, in 2015 Indian phones held 68 percent of the market share, while Chinese brands held just 32 percent. In terms of value, Chinese phones now make up about 65 percent of the market.
In the sub Rs 12,000 segment, which accounts for nearly one third of the mobile phone market, Chinese brands now have a 75 to 80 percent share, according to Mint.
Xiaomi, which rules the roost in India with a 28 percent market share, may see a five percent decline in shares if India goes ahead with the segment specific ban, according to Bloomberg estimates.
Will This Help Homegrown Brands?
If the intention is to help Indian brands become serious competitors in the smartphone market once again, restricting Chinese brands from the lowest segment won't do much on its own, industry observer Nimish Dubey told The Quint.
"It really depends on how much the local brands choose to invest. And actually if they do invest heavily, we would wonder why they did not do so earlier to take on competition," he said.
He also pointed out that even it Chinese brands are moved out of a segment, there are other players who could give Indian brands a run for their money, like Samsung and Nokia.
"The irony is that a few years ago, Indian brands had a good standing in the market. Today they do not enjoy the same amount of goodwill. So they would need to come out with very good offerings to win over the consumer. The absence of the Chinese alone will not help," he added.
When it comes to consumers, Dubey said such a move would be "slightly odd" because getting more bang for their buck helps Indian consumers.
"At the end of the day, it should be about products and innovation. And giving users value for money. Indian brands competed successfully with the Chinese until 2016 without any help from the Government because consumers felt they were getting something," he said.
Why Are Chinese Phones So Cheap?
Chinese brands have a warranted reputation for providing the most bang for your buck, partly due to their mass manufacturing expertise.
They have managed to flood the market with high-spec smartphones at low prices by incurring huge losses. Oppo, for example, made losses of over Rs 2000 crore in FY20, while Vivo posted over Rs 300 crore in losses.
The pandemic, and the subsequent shift to online shopping, may also have helped these companies, since they market and sell a large portion of their phones online.
Apart from that, companies from China are able to offer better tech at lower prices partly because of its judicial system.
In February, the European Commission filed a case on behalf of its members against China at the World Trade Organisation (WTO) for restricting its companies from protecting and using their patents.
It said that EU companies were being deterred from going to foreign courts to safeguard their standard-essential patents (SEPs).
China uses anti-suit injunctions to prevent companies from settling disputes outside the country. These are orders issued by a court that prevents a party from filing a case in another jurisdiction or forum.
This makes it easier for its manufacturers to negotiate lower prices for patents from European patent holders, or even use patented technology illegally, the EU says.
Read more about this here.
(At The Quint, we question everything. Play an active role in shaping our journalism by becoming a member today.)