India Can’t Hang Up on Chinese Smartphones

India and China are at an impasse again, but it is not on the border. India is investigating the local subsidiary of Chinese smartphone maker Xiaomi over alleged illegal royalty payments to foreign entities. Xiaomi denies any wrongdoing and has complained to the courts that the Indian Financial Crime Fighting Agency used threats of physical assault to extract confessions, Reuters said.

The relationship between Asia’s largest and third-largest economies is nothing but bitter. But the big drama masks a significant bilateral dependency on both sides, especially in the mobile phone sector. This latest spat is unlikely to derail a mutually beneficial relationship unless Indian courts take a naked political stance against Xiaomi.

The harassment allegations, which India’s ominous enforcement directorate denies, have prompted China to publicly support Xiaomi. China’s foreign ministry said last week that it hopes India will provide its companies with a non-discriminatory business environment, conduct investigations in accordance with the law and boost the confidence of international investors. The case is now pending in the Indian courts.

The latest flare-up of tensions recalls 2020, when relations between the two countries deteriorated after a bloody border dispute. Since then, India has banned more than 300 Chinese apps, including TikTok, and tightened standards for Chinese companies investing in India. But this very public spit aside, Indian and Chinese smartphone makers need each other.

Chinese smartphone players have been gaining market share in the country for years, data from Counterpoint shows. Despite the Indian government’s rhetoric about self-reliance, the border conflicts and recent parts shortages, the share of Chinese smartphone companies in the Indian market has increased from 60% in 2018 to 76% in 2021. Of the top five best-selling smartphone brands in India, four of them are Chinese and Xiaomi is the market leader with a market share of 24.9%. Samsung is the only non-Chinese brand in the top class.

Shilpi Jain, a research analyst at Counterpoint, notes that while there was significant anti-China sentiment in the country in 2020 following the Covid-19 pandemic and border dispute, Indians were slowly returning to Chinese smartphones due to a 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 nearly all Chinese smartphones sold in India are made in India — complementing the Modi government’s goal of building India as a hub for electronics manufacturing. Only 0.6% of the 127 million Chinese smartphones sold in India in 2021 were imported.

To be sure, the dependency is not just one way. India is already the second largest smartphone market in the world and much of its potential remains untapped. India accounted for 17% of global Chinese smartphone shipments in 2021, behind 31% of mainland China, according to Counterpoint. Other Asia-Pacific countries together accounted for 14% of global shipments for Chinese brands.

Business relations between two countries that have fought a war in the past will not always be easy. But when it comes to smartphones, India and China can’t hang up with each other just yet.

write to Megha Mandavia at megha.mandavia@wsj.com

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