INDIA BUSINESS WORLD - JUNE 2006
THE MONTH THAT WAS...

CHINESE ZTE TELECOM PLAN GETS RAW DEAL

  DESPITE growing economic relations and claims of strategic partnership, a great wall of security still separates Beijing and New Delhi . The government has put on hold Chinese giant ZTE Telecom's plan to enter wholesale trading in telecom equipment following objections from intelligence agencies. This comes on the back of several other big Chinese investments being objected to by intelligence agencies.

The home ministry is now conducting a detailed probe into the activities of Chinese companies, and FIPB has been told that ZTE cannot be granted permission for wholesale trading before the investigation report is considered. Already present in the Indian market with a subsidiary, the Chinese company had sought permission to enhance its equity capital and enter aftersales service and wholesale trading of telecom equipment. The resistance to ZTE on security grounds comes at a time when multinationals such as Hutchison Ports have also been denied permission to take up projects in India due to lack of clearance from intelligence agencies.

CHINESE IT major Huawei Technologies too faced the same fate. The ZTE controversy has also led to a debate on the need for specific clearance for trading in high-tech equipment requiring specialised after-sales service. Press Note 4 allows automatic clearance for such activities, but the objection from intelligence agencies has led to a rethink on the issue.

In view of defence minister Pranab Mukherjee's visit to China and the discussion about strategic partnership between the two countries, the stand taken by the intelligence agencies has led to confusion among officials. Even though clearance is available under the automatic route for the activities that ZTE had sought permission to enter into, the proposal was referred to the ministry of external affairs in view of the security aspect.

The MEA felt that the views of IB and RAW should be taken. Since RAW had objections to the proposal, the home ministry decided in favour of detailed investigation. FIPB was informed by the home ministry that security agencies had ‘serious apprehensions' about the fallout of ZTE's expansion plans in India .

FIPB members pointed out that the Chinese company already had a presence in India and the security agencies had not cited any specific activities of ZTE as a basis for their objection. However, the home ministry was of the view that clearance should not be provided till its investigation report was considered.

After this, FIPB deferred the proposal, and the home ministry's report is awaited. The discussions at FIPB took place recentlty and the proposal is expected to be taken up after considering the views of security agencies.