Xiaomi says India’s scrutiny of Chinese firms unnerves suppliers

China’s Xiaomi has told New Delhi that smartphone component suppliers are wary about setting up operations in India amid heavy scrutiny of Chinese companies by the government, according to a letter and a source with direct knowledge of the matter.

Xiaomi (1810.HK), opens new tab, which has the biggest share in India’s smartphone market at 18%, also asks in the letter dated Feb. 6 that India consider offering manufacturing incentives and lowering import tariffs for certain smartphone components.

The Chinese company assembles smartphones in India with mostly local components and the rest imported from China and elsewhere. The letter is Xiaomi’s response to a query from India’s information technology ministry asking how New Delhi can further develop the country’s component manufacturing sector.

India ramped up scrutiny of Chinese businesses after a 2020 border clash between the two countries killed at least 20 Indian soldiers and four from China, disrupting investment plans of big Chinese companies and drawing repeated protests from Beijing.

While Chinese companies operating in India are reticent to speak publicly about the scrutiny, Xiaomi’s letter shows that they continue to struggle in India, especially in the smartphone space where many critical components come from Chinese suppliers.
In the letter, Xiaomi India President Muralikrishnan B. said India needed to work on “confidence building” measures to encourage component suppliers to setup operations locally.

“There are apprehensions among component suppliers regarding establishing operations in India, stemming from the challenges faced by companies in India, particularly from Chinese origin,” Muralikrishnan said, without naming any companies.
The letter said the concerns were related to compliance and visa issues that it didn’t elaborate on, and other factors. It said “the government should address these concerns and work to instil confidence among foreign component suppliers, encouraging them to set up manufacturing facilities in India.”

Xiaomi and the IT ministry did not respond to queries for further information and comment.