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Anusuya Lahiri

Leading Chinese Smartphone Invites Regulatory Scrutiny In India, Shares Drop In Hong Kong

  • Xiaomi Corp (OTC:XIACY) (OTC:XIACF) shares lost steam in Hong Kong after India’s Enforcement Directorate alleged the second-largest smartphone vendor of “illegal remittances” and seized ~$730 million, the Financial Times reports.
  • India’s anti-money laundering and foreign exchange crime division alleged Xiaomi’s Indian subsidiary of sending $55.51 billion ($725 million) of foreign currency payments disguised as royalties “on the instructions of their Chinese parent group.”
  • The smartphone maker allegedly created a “documentary facade” among “group entities” to send the funds overseas, providing misleading information to the banks while remitting the money abroad.”  
  • Xiaomi, holding the most significant share of India’s smartphone market, argued the payments under scrutiny were “legit and truthful.” 
  • “These royalty payments that Xiaomi India made were for the in-licensed technologies and IPs used in our Indian version products,” Xiaomi defended. “It is a legitimate commercial arrangement.”
  • Xiaomi acknowledged its commitment to working closely with government authorities to clarify any misunderstandings. 
  • “The China market is down for quarter one and quarter two after the lockdowns, and the demand side is very dim now,” an analyst acknowledged. “India is the second-biggest market for Xiaomi [after China], so it’s very crucial.” 
  • Price Action: Xiaomi shares closed lower by 4.43% at HKD11.66 on the Hong Kong stock exchange Tuesday.
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