Tensions between India and China: Xiaomi is the newest Chinese company facing heat in India

In a statement on Friday, India’s law enforcement agency, the country’s main financial investigation agency, accused the Indian subsidiary of smartphone maker Xiaomi of violating foreign exchange laws by making “illegal money transfers”.

The agency said Xiaomi India, acting on instructions from its parent company, “has translated foreign currency equivalent to [55.5 billion rupees, $726 million] to three foreign-based legal entities, which include one Xiaomi Group legal entity under the guise of royalties. ”

Xiaomi began operations in India in 2014 and began transferring money a year later, the agency added. Indian authorities have now withheld an equivalent amount of money “lying in the company’s bank accounts”.

“Xiaomi India procures fully manufactured mobile kits and other products from Indian manufacturers,” said the Directorate of Implementation. “Xiaomi India has not benefited from the services of the three overseas-based individuals to whom these amounts have been transferred,” the agency added.

He also accused the company of providing “misleading information to banks while transferring money abroad”.

Xiaomi India, which distributes Mi-branded smartphones, said in a statement that “all our operations are strictly in accordance with local laws and regulations.” In a Twitter post on Saturday, the company said it believed the payments and statements it made to the bank were “all legal and correct”.

Payments were made for “licensed technologies and IP addresses used in our India version products”.

India has become tough with Chinese companies after border tensions escalated between the world’s most populous countries two years ago. In 2020, India banned more than 200 applications – many of which are Chinese, including the hugely popular video platform TikTok. Earlier this year, India again banned several Chinese applications owned by technology companies such as Tencent (TCEHY), Alibaba (BABA) and NetEase (NTES). In response, Beijing said it was “seriously concerned” about India’s actions against Chinese companies.