Will bar Chinese presence in broadband networks

An internal strategy proposal by the Department of Telecommunications (DoT) that suggests restricting imports of certain kinds of telecom equipment has worried Chinese companies and analysts, who have seen the plans as reflecting rising ‘economic nationalism’ and ‘suspicions’ of the Indian government towards them.

If enforced, the suggested strategy could derail plans of Chinese telecom giants Huawei and ZTE, which are hoping to bid for lucrative contracts ahead of the rollout of fourth generation networks. The internal proposal, which has not been approved, will limit Chinese imports to devices and in telecom manufacturing, and bar their presence in broadband networks, which are viewed as strategically sensitive, according to media reports.

Analysts in China have appeared to take a practical view of India’s security fears, calling on both firms and the government to do more to increase trust with India and address concerns about the trade deficit to avoid the possibilities of a trade war. China should “diversify the goods it purchases from India and understand the country better through improved communication to avoid trade wars,” said Sun Shihai, an India scholar at the influential Chinese Academy of Social Sciences (CASS). “India has very deep suspicion about China,” he told the Communist Party-run Global Times newspaper, suggesting automobile parts as one area where China could boost imports. “India appears to have been wary of the influx of foreign goods,” added Wei Zhong, a professor at the Institute of Economics at the Chinese Academy of Social Sciences. China needed to “better understand economic nationalism and increase mutual trust with India in the areas of trade and politics,” the report suggested.

Huawei and ZTE are already working with a number of Indian companies in third generation network services and have both won contracts to the tune of hundreds of millions of dollars in selling equipment for 2G networks. Out of Huawei’s reported $1.5 billion revenue in India, $1.2 billion derived from its business in networks. Only $300 million came from its devices business.

While Chinese telecom equipment was initially restricted by the Home Ministry, citing security fears, it was given the green light after companies addressed Indian authorities’ concerns by agreeing to a range of security requirements. The Global Times said companies such as ZTE, which have been hit by the slowdown in the West, are increasingly dependent on markets such as India. ZTE’s operating profit fell by 226 per cent year-on-year to a loss of 863 million yuan ($135.8 million), the newspaper cited a financial statement as saying. The company said it will “focus on countries with huge populations”.

Huawei has announced plans to invest $2 billion in India from 2011-15, and will set up a new global R&D centre in Bangalore. Both companies have argued that their competitively priced equipment have enabled Indian companies, which will have to rely on the U.S., Japan, South Korea, Sweden, Finland and Australia if the DoT proposals are enforced, to bring down prices substantially.

Indian officials have assured Chinese companies that a level playing field would be provided — most recently during the visit of Commerce Minister Chen Deming to New Delhi this week — leaving some Chinese analysts to suggest that the DoT proposal was unlikely to be approved.

Officials have assured Chinese firms that policies would not specifically target them, and security standards that will be set would be transparent and applicable to all countries.

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