Facing government action, Huawei to dial down R&D operations

Facing government action, Huawei to dial down R&D operations

Decision comes after Income Tax searches and probes into ‘national security’ aspects

Faced with Income Tax raids, exclusion from 5G telecom trials in India, and increasing restrictions on research collaborations, Chinese telecom major Huawei is planning to downsize operations at its Research and Development (R&D) facilities here, sources told The Hindu, which could affect a large part of the 3,500 jobs that the company has created in India over two decades. The decision to consider downsizing, and even shutting down parts of the operations at its R&D campus just outside Bengaluru, comes more than a year after Huawei had asserted it would continue its work in India “no matter what happens”.

The sources say the rethink comes after a series of government actions, including Income Tax raids and audits of 20 years of company records, investigations into “national security” aspects of Huawei’s operations, and a Look Out Circular (LOC) against Li Xiongwei, CEO of Huawei Telecommunication India (marketing operations), that he has appealed in court. On August 12, Mr. Li appealed in court against the LOC that had prevented him from travelling abroad, submitting through his lawyer, noted telecom expert Vijay Aggarwal, the statement, “I am a Chinese [national] and I am not a terrorist.” Income Tax authorities asked the court, whose decision is expected this week, not to allow the Huawei CEO to leave, in case he did not return to face charges of tax fraud and non-compliance.

The Hindu contacted Huawei for a response on Sunday, but did not receive a response.

According to multiple sources, Huawei managers are finding it difficult to continue R&D activities in particular, as the government, including the Home Ministry, Education Ministry, and others, have placed informal restrictions on any collaborations by “critical ecosystem players” like universities, and start-ups and analytical firms. Since the pandemic, the sources said, Huawei’s product and technology experts from China are not able to get visas to visit India as well, ostensibly due to reciprocal restrictions by the Chinese government.

As a result, Huawei has already moved some of its critical development projects back to China and redeployed Indian teams to existing projects. “It is almost like the end game for Huawei in India,” said a leading telecom analyst based in Gurgaon, adding that, “without 5G [exclusion from Indian 5G trials], the company is out of the telecom market to service 2G, 3G and 4G networks as it isn’t on the Indian government’s list of trusted partners.” In addition, while existing projects are being completed, no new projects are being contracted at present.

The case against Huawei is part of a series of government measures aimed at checking Chinese corporate influence in the country, especially after tensions between New Delhi and Beijing over the People’s Liberation Army’s (PLA) transgressions at the Line of Actual Control in Ladakh in April 2020. Apart from Huawei, telecom majors ZTE, Vivo, Xiaomi, Oppo, and other Chinese companies have had their offices searched in the past few months by teams from the Income Tax Department and the Directorate of Revenue Intelligence. Speaking to journalists in Delhi last week, Chinese Ambassador Sun Weidong warned that the actions could “harm” Chinese interests, indicating that investment in India and the “Make in India” programme could be affected unless India provides an “open, fair and non-discriminatory” business environment.

“We have noted that the Indian side has recently taken a series of actions against some Chinese companies in India. Harming other’s interest will not bring one any benefits,” Mr. Sun said.

“The Chinese enterprises have created plenty of local employment and made contributions to the economic and social development of India. The Chinese government always requires the Chinese enterprises to operate overseas in accordance with the laws and rules, and also firmly supports Chinese enterprises in safeguarding their legitimate rights and interests,” he added.

The Ministry of External Affairs (MEA) declined to comment on the issue or on the Ambassador’s remarks.

A senior government official told The Hindu that tensions with China had led Indian agencies to take a closer look at Huawei and other Chinese companies supported by Beijing.

“Apart from large, tax-related misdemeanours, significant and damaging evidence was uncovered regarding its role in furthering the aims and objectives of the Chinese state, inimical to national security,” the official, who asked not to be identified, said. No charges other than those related to I-T have been filed, however.

In 2000, Huawei invested over $150 million to set up an R&D facility on 20 acres of land on the outskirts of Bengaluru. Although initially, it had plans to ramp up its employees to over 10,000, it currently employs 3,500 engineers who work on diverse products and development activities. “Huawei pays well and takes care of its employees well. Therefore, the company enjoys a good retention ratio even these days,’‘ B.S. Murthy, CEO of Leadership Capital, who used to hire for the firm, said.

With plans to cut down software engineers and product design teams in the offing, and another possible plan to lease out parts of its sprawling campus, the future of those jobs appears to be on the line.

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