The Dichotomy of Economic Imperative and Security Dilemma: The Chinese Telecom Companies in India
Rup Narayan Das

The outbreak and spread of Covid-19 and Chinese government’s failure to share its timely information to the outside world have raised question mark about the transparency of the communist regime there. Concomitantly, it has also raised the security implications of Chinese telecom companies, particularly Huawei, the Chinese behemoth bidding for a big slice in the 5-G technology in many countries including India which has given permission for its trial in the country. The United Kingdom had earlier given limited market share of 5-G in to Huawei in UK. Prime Minister Boris Johnson who recovered from Covid-19 is reportedly mulling over withholding the offer to Huawei. President Trump is pleading world leaders including Prime Minister Narendra Modi not to allow Huawei in 5-G technology due to security implications. During his visit to India in February this year President Trump said, “the need for this emerging technology to be a tool for freedom, progress and prosperity, not to any thing where it could be even conceived as the conduit of suppression and censorship.”1 This message is loud and clear.

Recently Australia also banned Chinese telecoms firm Huawei Technologies Co Ltd from supplying equipment for 5G mobile network, citing risks of foreign interference and hacking which Beijing dismissed as an “excuse” to tilt the playing field against a Chinese firm. It was reported in the media that the move, following advice from security agencies, signals a hardening of Australia’s stance towards its biggest trading partner as relations have soured over Canberra’s allegations of Chinese meddling in Australian politics. It also brings Australia in line with the United States, which has restricted Huawei and compatriot ZTE Corporation from its lucrative market for similar reasons. 2 The Australian government also said that national security regulations typically applied to telecom carriers would now be extended to equipment suppliers. The statement further said that firms “who are likely to subject to extrajudicial directions from a foreign government” would leave the nation’s network vulnerable to unauthorized access or interference, and posed a security risk.

Huawei’s Australian arm denied that it is controlled by Beijing and bemoaned that Australia should not “use various excuses to artificially erect barriers and conduct discriminatory practices”. Australia had previously banned Huawei the world’s largest maker of telecommunications network gear, from providing equipment for its fibre-optic network and moved to block it from laying cables in the Pacific.

There was also a report of the US Congress Panel stating that the two technology majors from China have ties with that country’s government and military and must be barred from entering into mergers and acquisitions in the US. Over the years, the Chinese telecom companies have penetrated the Indian telecom sector with some restrictions put by the government agencies. It is in this backdrop that this article aims to elucidate and analyse the operations of the Chinese telecom companies keeping in view the security concerns and justifications for those concerns.

Penetration of Chinese telecom companies in India

Ever since the telecom revolution in India, Chinese telecom companies have been eyeing the promising Indian market. Huawei and ZTE, the two key Chinese players in the field started operations in India, as early as 1998-1999 by setting up software outsourcing centres. In the initial years from 1998 to 2005, their success in the Indian telecom sector was constraint due to widely held perceptions of poor equipment quality, as well as security concerns. In 2001, US intelligence sources reportedly tipped off the Indian government about Huawei’s activities in India. There were reports that Huawei had played a role in “sweeping and debugging operations at the Chinese Embassy in India”.3

Huawei’s major breakthrough came in 2005-2006 when it used low-priced tactics and a variety of other methods to win business with ITI, BSNL and MTNL. Huawei set up a local manufacturing base Sriperumbudur near Chennai with an investment of $500 million in 2010. Huawei started a R&D centre in India which is its biggest outside China, employing 2000 people in 2010. In the initial years of its operation Huawei couldn’t generate significant orders because of the security concerns. There were reports that Chinese equipment makers were placing malware and spyware in their equipment. Huawei, however, did a turnaround of its business, when it became the first foreign IT Company operating in India to comply with the Home Ministry’s demand to share its source codes with the law enforcing authorities of government of India. In spite of security concerns, Huawei which also makes telecom gear entered into a deal with HCL Infosystems for the distribution of the former’s entire product range and solutions across the country in January 2013.

Yet another Chinese IT major which has made a major inroad into Indian IT market is ZTE. The Company entered India in 1999, but didn’t win any orders until 2002. Then, from 2004 to 2009, ZTE’s turnover in India grew from $100 million to nearly $1 billion, making India ZTE’s largest overseas market and its biggest market after China. ZTE is the fourth largest player in the Indian telecom equipment market, following Ericsson, Huawei and Nokia Siemens Networks.

The Chinese Handsets

In the initial years of introduction of cellular telephones in India, Chinese handsets imported, both legally and illegally, dominated the Indian market for their lower prices as compared to other handsets. In mid-2009, these mobile phones were considerably cheaper than the branded devices but often claimed to have many of the same multimedia functions. Some even promised much more- as a 30-day battery back-up, 8-megapixel cameras and TV reception.

The Chinese mobile phones were the first to offer two and three-SIM card handsets. This was very enticing to poorer consumers who often alternated between SIM cards to save money by taking advantage of varying rates offered by different service providers. At different time of the day or week, one provider or another would offer cheap rates to attract customers, who found it economical to switch operators by tapping quickly from one SIM card to another. Nokia officials admitted ruefully that Nokia had been slow to react to India’s love affair with dual SIM phones and to start manufacturing its own models.4 Chinese mobile phones, unlike the other branded handsets, were sold with no guarantee, warranty or bill of purchase. Their prices were much lower, not only because they were non-branded and of lower quality, but also because they were not connected to any service centres and retailer did not pay Value Added Tax (VAT).

The advent of Chinese smart phones India is palpable. A recent Chinese player in India's bourgeoning smart phone market is the Shenzhen based OnePlus. A full page advertisement in almost all leading English dailies in India claimed that “OnePlus Surpasses Samsung & Apple to Lead the Growing Indian Premium Segment during Q2, 2018”.5 The advertisement claimed that as per Counterpoint Research’s latest analysis on the important Indian smartphone market, the premium smartphone segment in the range of above INR 30,000 grew 19 % annually and 10% sequentially during second quarter of 2018 as more consumers upgrade to 2018 flagship launched by different android OEMMs in India. The advertisement claimed OnePlus surpassed Samsung to lead the premium smart phone segment for the first ever for full quarter. This was due to strong sales of its flagship OnePlus 6 which was launched during the quarter. The advertisement claimed India remains a market for OnePlus, contributing to almost a third of its global revenue. Furthermore, with every flagship userbase has been growing in India and this has now started translating into record sales for every new flagship it launches. The brand is also capitalising on strong word of mouth and leveraging social media to effectively reach out to its target user base.

Security Implications

It is against this backdrop of growing penetration of Chinese telecom companies in India that there has been realisation of its security implications. Some time back a report sent to National Security Council Secretariat (NSCS) of India and other security agencies by a department under the Ministry of Electronics and Information Technology stated that the maximum number of cyber-attacks on official Indian websites is from China, US and Russia. The report, prepared by the Indian Computer Emergency Response Team (CERT-In), which comes under the ministry analysed cyber-attacks from April-June 2018. CERT-In is the nodal agency which deals with cyber security threats like hacking and phishing. It collects, analyses, and disseminates information on "cyber security incidents". According to the report, it has been observed that China continues to "intrude" into Indian cyber space in a "significant" way. The cyber-attack from China made up 35% of total number of cyber-attacks on official Indian websites followed by US (17%), Russia (15%), Pakistan (9%), Canada (7%), Germany (5%%). Newspaper quoted the report saying, "Many of the institutions impacted by malicious activities have been identified, and they have been advised to take appropriate preventive action. These include Oil and Natural Gas Corporation (ONGC), National Informatics Centre (NIC), Indian Railways Catering and Tourism Corporation (IRCTC), Railways, Centre for Railway Information Systems (CRIS), and some banks like Punjab National Bank, Oriental Bank of Commerce, State Bank of India, and State data centres, particularly in Maharashtra, Madhya Pradesh and Karnataka."6

It was in this context that it was reported in the media that the government was preparing a policy frame-work to regulate foreign investments more closely in internet and smart phone business, especially in view of the increasing Chinese presence in these sectors.7 The report further said, government agencies, including the Defence Ministry, Information Technology ministry, and the Telecom Regulatory Authority of India, besides the Reserve Bank of India, are working out new policies. The proposed policies are meant to deal with the increasing digital colonisation of India. The aim is not to stop or restrict foreign investments but to install safeguards that will ensure that India's security is not compromised. This assumes significance as Chinese and American companies either directly control large parts of the internet business or have tremendous influence as investors in local star-ups, even in strategically important areas such as financial services and content.

Recently, after Japan's Soft Bank Group, Chinese companies led by Alibaba Group, Tencent Holdings and Xiaomi Inc. have become the most influential investors in the star-up eco-system. Given that Chinese smart phone brands control a majority of the Indian smart phone market, regulators have identified three key threats related to Indian users- addiction, surveillance and manipulation. The threats have been categorised under the acronym of ASM, the report quoted officials saying. The deepest concern is around national security. This is a serious issue given the persistent security dilemma and trust deficit between the two countries.

It is in this context that government of India has initiated and implemented certain safeguard measures. The Reserve Bank of India has taken steps “to ensure better monitoring, it is important to have unfettered supervisory access to data stored with these system providers as also with their service providers/intermediaries/third party vendors and other entities in payment ecosystem”.

As far as implications for national security is concerned, it may be mentioned that telecom networks are strategic assets of a country and play a very vital role in many critical sectors such as defence, government, power, railways, oil and gas. They are the delivery vehicles for a large number of services like health-care, education, financial services and e-governance etc. From a security angle, telecom networks are one of the most mission-critical elements, forming the backbone for secure and timely communications. Since hampering of telecom infrastructure in war times can act as a force multiplier, it is imperative that telecom networks are built from trusted sources. In addition, network elements are complex hardware and software which can have concealed malware that can be activated to divert any sensitive information or data to unintended locations or even disrupt the network. Indian telecom networks, in particular, are highly vulnerable given that most of the network equipment is imported. In fact, more than 60 per cent of the network equipment currently being used in India is of Chinese make, and even the imported products from US/Europe, have a lot of manufacturing physically done out of the Chinese factories.

It is worth a while to mention in this context that the National Security Council Secretariat on the basis of Intelligence Bureau reports, in July 2013 cautioned against Chinese gear makers especially Huawei and ZTE, and reportedly observed that India must take steps to overhaul its domestic manufacturing capabilities to ‘check, investigate and ultimately replace risks that come with foreign equipment’. It was reported in the media that as per intelligence reports Chinese vendors such as Huawei and ZTE were part of a Chinese Army project called PLA-863. “As per this programme, Huawei was mandated to focus on switches and routers, ZTE on mobile and fibre networks, Julong on switch boards and Legend on computers with the objective of dominating world telecom scene and strengthening its electronic warfare capabilities”. 8

The penetration of Chinese telecom sector has no doubt benefitted Indian telecom users in terms of its affordability and employment generation. Now that the Chinese players in the telecom sector have become well entrenched in the India, the issue of security concerns needs to be addressed with seriousness. What is worrisome is the fact that is the alarming costs of import of telecom equipment which is projected to cross even India’s oil import bill. It may be mentioned in this connection that in December 2013, former Prime Minister Manmohan Singh expressing his concerns said that India needed to develop a strong domestic manufacturing base in electronics and telecommunications. It was estimated that by 2020 India would be importing electronic products worth about $300 billion, which would be more than the value of India’s oil imports, he added.9 India should have the foresight to develop the telecom sector as a strategic sector like nuclear power and space technology, in conjunction with the expansion of telecom sector in India. The problem is that while the super structure of telecom sector expanded, the infrastructure of manufacturing of telecom equipment didn’t develop.

It augurs well, however, ever since the new government came to power in 2014, it has been taking policy initiatives to encourage and incentivise domestic production of telecom equipment. Public Procurement Order 2017 envisages that if a nodal ministry is satisfied that Indian suppliers of an item are not allowed to participate and/or compete in in procurement by any foreign government, it may, if it deems appropriate, restrict or exclude bidders from that country for being eligible for supplying that item and/or other items relating to the nodal ministry. To realise the intent of the government, the Union Cabinet on 20th March this year approved three new schemes worth over US$ 6.4 billion to promote large scale electronics manufacturing, electronic component, and semiconductor manufacturing in the country.10 It is strongly felt that given the security dilemma in prevailing between the two countries, India should curb the operation of Chinese telecom companies in India and the Chinese companies offering 5-G technology should not be encouraged.

End Notes
  1. “Donald Trump raises secure 5G networks in meeting with PM’, The Economic Times, 26the February 2020, https://economictimes.indiatimes.com/industry/telecom/telecom-news/donald-trump-raises-secure-5g-networks-in-meeting-with-pm-modi/articleshow/74303671.cms?from=mdr
  2. Tom Westbrook and Byron Kaye, “Australia bans China’s Huawei from mobile network project, angers Beijing”, https://www.livemint.com/Companies/OByBVM17mPFJwViWDE7UvL/Australia-bans-Chinas-Huawei-from-mobile-network-project-a.html
  3. Sanjay Nayak, “Telecom equipment exports from China” in Prof.S. Gopal& A Mancheri (ed), Rise of China: An Indian Perspective, Lancer Books, 2014,
  4. Robin Jeffrey and AssaDoron, Cell Phone Nation, Hachette India, New Delhi, 2015, p.99
  5. The Times Of India, 2nd August, 2018 https://www.google.com/search?client=firefox-b-d&q=OnePlus+Surpasses+Samsung+And+Apple
  6. Mahender Singh Manral, "35% of Cyber Attacks on Indian sites from China: Official Report", Indian Express, New Delhi,23rd August, 2018
  7. AnirbanSen and Mihir Desai, " China'sgrowing clout in internet business worries Indian regulators", Mint, New Delhi, 5th July, 2018
  8. Joji Thomas Philip, “NSNSC Points to Huawei, ZTES Links with Chinese Military”, Economic Times, 15th April,2013,Joji Thomas Philip, “NSNSC Points to Huawei, ZTES Links with Chinese Military”, Economic Times, 15th April,2013
  9. “India needs to develop a strong electronic base: Manmohan Singh”, Economics Time, 6 December, 2013,https://economictimes.indiatimes.com/industry/cons-products/electronics/india-needs-to-develop-a-strong-electronics-base-manmohan-singh/articleshow/26924043.cms?from=mdrRup Narayan Das,” Covid-19- Can it be the Sputnik Moment for India?”, 11 April, 2020, Vivekananda International Foundation,https://www.vifindia.org/2020/april/10/covid-19-can-it-be-the-sputnik-moment-for-

(The paper is the author’s individual scholastic articulation. The author certifies that the article/paper is original in content, unpublished and it has not been submitted for publication/web upload elsewhere, and that the facts and figures quoted are duly referenced, as needed, and are believed to be correct). (The paper does not necessarily represent the organisational stance... More >>


Image Source: https://cdn.techinasia.com/wp-content/uploads/2014/07/china-telecom-players.jpg

Post new comment

The content of this field is kept private and will not be shown publicly.
2 + 12 =
Solve this simple math problem and enter the result. E.g. for 1+3, enter 4.
Contact Us