News: India, China vie in telecom, IT turf wars

(RTR 04/07/2006) Shanghai/New Delhi - India has been giving a cold shoulder recently to Huawei Technologies, one of China's fastest rising high-tech stars that is scouring the globe for new markets.

Huawei's chief rival, ZTE Corp., has not fared much better, with its plans to enter India's wholesale telecoms equipment market put on hold earlier this year over concerns from India's intelligence agency, according to media reports.

Several Indian companies, meanwhile, were thwarted in their attempt to buy Asia Netcom, an undersea cable unit of China Netcom Group Corp., China's number-two fixed-line phone firm.

The series of tussles underscore a growing tension between Asia's two biggest up-and-comers, as each nation competes to export its high-tech industries that have done well while protecting other sectors it wants to develop.

"There is no doubt about the fact that the two countries would be increasingly competing with each other," said Paranjoy Guha Thakurta, economic analyst and director at School of Convergence. "The geographical proximity means that both compete for investment."

In a widely followed case last year, Huawei reportedly was picked to supply equipment to state-run Bharat Sanchar Nigam Ltd. (BSNL), India's largest phone carrier, only to have the deal yanked when the Chinese firm refused to supply technology, industry sources said.

India's security department then reportedly rejected a $60 million investment proposal from Huawei last August, and in April this year shot down another bid for a contract with BSNL, according to reports in Chinese media.

A BSNL official, who refused to be named, declined to comment on the security aspect but said the first case was "more of a pricing dispute with Huawei."

For China, telecoms has become a point of pride and corporate strength, with the nation now boasting the world's number-one and number-three mobile carriers by subscribers, and Huawei and ZTE are two of the hottest players in networking gear.

India, meanwhile, has one of the world's most cutting-edge software export machines, with globally recognised names such as Infosys Technologies, Tata Consultancy Services and Wipro Ltd.

HISTORIC RIVALS

On a broader level, tensions between India and China are complex, rooted in historic clashes and complicated by more recent economic rivalries.

The pair fought a border war in 1962 that India lost, and India has also irked China by providing refuge for a number of exiled Tibetan leaders, most notably the Dalai Lama.

As the two countries post some of the world's highest economic growth rates, they have also become rivals for foreign investment -- a major driver of such growth.

India expects foreign direct investment (FDI) for the 12 months through March to top $10 billion, compared with $60 billion for China last year. But the gap is narrowing quickly, with India's figure growing fast while China's plateaus.

In a recent case reflecting the growing tensions, three of India's top phone companies -- Videsh Sanchar Nigam Ltd., Reliance Communications Ltd. and Bharti Group -- were among four finalists bidding for Asia Netcom.

Despite their majority presence, however, the only non-Indian party in the bidding, a British private equity group, ended up signing a deal to buy the asset for about $400 million.

"They would rather have sold it to a non-Indian company," said one observer of the deal who spoke on condition of anonymity.

A number of Indian firms have also been eyeing the China market, with most of the nation's top software houses setting up shop in China over the last two years to draw on the country's relatively skilled labour pool and cheap costs.

"Look at the scale, the availability of talent and the good local market," said Infosys co-founder S.D. Shibulal.

But many acknowledge that even that move is being driven in part by big name multinational clients who want to see the Indian firms diversify geographically and offer services closer to the multinationals' East Asia operations.

"Business is business, and business is first," said one China-based executive at a major Indian firm. "There is a saying in Chinese: Unless we fight, we will never become friends."