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Xiaomi’s growth further dampened in difficult Indian market

In the midst of growing scrutiny of Chinese companies in India, the court has refused to unfreeze USD 676 million worth of assets of Chinese smartphone company, Xiaomi Corp..

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Xiaomi Corp. has been engulfed in a dispute with India’s tax department for much of this year, illustrating the increasingly difficult operating environment. Xiaomi said last week that its operations in the country had been effectively halted as a result of the Indian court’s refusal to lift a freeze on USD 676 million worth of its local assets.

As a result of allegations that Xiaomi made illegal remittances to foreign entities by passing them off as royalty payments, India’s Enforcement Directorate (ED) froze Xiaomi’s assets in April. As Xiaomi pointed out, over 84 percent of the assets seized by the ED were equivalent to Qualcomm royalty payments.

Analysts say Delhi may be concerned about Chinese brands dominating its market rapidly, despite Indian consumers’ embrace of Chinese smartphones and other high-tech products. Chinese brands may face an uphill road in the years ahead, as tighter scrutiny may result in more similar clashes.

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The company has denied any wrongdoing in the tax dispute, but the court said it must first provide bank guarantees for the USD 676 million in frozen assets. Xiaomi challenged the ED’s asset freeze in court, calling it “severely disproportionate.” As a result of the dispute, Xiaomi’s Hong Kong-traded stock has lost more than half its value this year – a much steeper decline than the Hang Seng Index’s 30 percent drop.