Finmin alerts FIPB on US fear of China telecom gear

Written by Anandita Singh Mankotia | New Delhi | Updated: Nov 20 2012, 07:13am hrs
After a recent US Congressional report declaring that telecom equipment supplied by Chinese companies ZTE and Huawei may be embedded with spyware, it is the turn of the Indian government to revisit the controversial issue.

Three years after the controversy over Chinese telecom network equipment erupted, India is considering tightening rules on foreign direct investments, mandating these companies to seek approval before investing and selling equipment. Investments and sales related to network equipment are under the automatic route since 2006, precluding the need for government approval.

Earlier, the matter was settled with the government asking service providers to certify that the equipment had been duly tested and were clean of any malware.

However, following recent events, the finance ministry sought a meeting of the core group of secretaries comprising the Foreign Investment Promotion Board (FIPB) to discuss the recommendations of the Congressional report.

In a letter to the members of the core group of secretaries, Arvind Mayaram, secretary, department of economic affairs, said: An investigative report on US national security issues posed by Chinese companies Huawei and ZTE has been received by the finance ministry and the finance minister has desired that it be placed before the FIPB. Since the issue raised is sensitive in nature, I propose that these be discussed in the core group of secretaries comprising the FIPB before the scheduled time of the FIPB on November 20.

According to the note, the secretaries will also consider recommendations made by the Congressional committee to the US government. Some of these include blocking Chinese acquisitions of domestic telecom companies, barring them from supplying government systems and strongly discouraging the private sector from sourcing Chinese equipment, investigating any unfair trade practices including state support and listing Chinese companies on domestic stock exchanges to promote more financial and operational transparency.

However, any further restrictions would surely delay, if not curtail investments made by Chinese gear manufacturers in the country. Owing to cost competitiveness, Chinese companies have been cornering telecom contracts across the globe, including in India, where the two companies control close to 35% of the telecom equipment wholesale market.

Though the Chinese companies have termed US report baseless and speculative citing its failure to mention any incident of Chinese spyware, the Congressional report maintains that the obscure ownership pattern of the companies, their close ties with the Chinese state, unclear financial arrangements and possible violation of US laws as testified by former employees together a pose grave threat to US national security.