India and China are again at a standoff, but it is not on the border. India is probing a local subsidiary of Chinese smartphone maker Xiaomi for alleged illegal royalty payments to foreign entities. Xiaomi has denied any wrongdoing and complained to the courts that India’s financial crime-fighting agency used threats of physical violence to elicit confessions, according to Reuters.
The relationship between Asia’s largest and third largest economies is nothing if not acrimonious. But the high drama hides significant bilateral dependence on both sides, especially in the cellphone sector. Unless Indian courts take an openly political stance against Xiaomi, this latest controversy is unlikely to derail a mutually beneficial relationship.
Allegations of intimidation, which India’s ominously named Enforcement Directorate, have prompted China to publicly come out in support of Xiaomi. China’s foreign ministry said last week that it expected India to provide its companies with a non-discriminatory business environment, conduct investigations in compliance with the law and boost international investor confidence. The matter is now pending in the Indian courts.
The latest flare-up in tension dates back to 2020, when relations between the two countries deteriorated following a bloody border conflict. Since then, India has banned more than 300 Chinese apps – including TikTok – and tightened standards for Chinese companies investing in India. But this highly public controversy aside, India and Chinese smartphone makers need each other.
According to Counterpoint data, Chinese smartphone companies have been gaining market share in the country for years. Despite the Indian government’s rhetoric on self-reliance, border conflicts and recent component shortages, the share of Chinese smartphone companies in the Indian market rose to 76% in 2021 from 60% in 2018. Of the top five best-selling smartphone brands in India, four of them are Chinese, with Xiaomi being the market leader with 24.9% market share. Samsung is the only non-Chinese brand at the top level.
Shilpi Jain, a research analyst at Counterpoint, noted that while there was a lot of anti-China sentiment in the country in 2020 after the Covid-19 pandemic and border dispute, Indians gradually returned to Chinese smartphones due to the lack of affordable alternatives. Samsung, Nokia and some Indian brands have lost market share in India to Chinese smartphone makers over the years.
Counterpoint data also shows that almost all Chinese smartphones sold in India are made in India—a complement to the Modi government’s goal of building India as an electronics manufacturing hub. Of the 127 million Chinese smartphones sold in India in 2021, only 0.6% were imported.
To be sure, dependencies are not just one way. India is already the second largest smartphone market in the world and a lot of potential remains untapped. According to Counterpoint, India accounted for 17% of global Chinese smartphone shipments in 2021, trailing mainland China by 31%. Overall, other Asia-Pacific countries account for 14% of global shipments for Chinese brands.
Trade relations between two countries that have fought wars in the past will not always be easy. But when it comes to smartphones, India and China just can’t stand each other.