Q+A: What’s behind the China-India security dispute?

By Devidutta Tripathy and Bappa Majumdar

NEW DELHI (BestGrowthStock) – India’s concerns that Chinese telecoms network equipment will compromise national security risks hurting ties between the world’s two fastest growing economies.

Below are some questions and answers on what the most recent spat is about and what its implications are:


India’s interior ministry and intelligence community have long worried that Chinese equipment may have spying technology embedded that can be used to intercept sensitive conversations and government documents that can endanger national security.

The two companies in focus are Huawei Technologies Co and ZTE Corp, the largest network equipment makers in China.

Huawei founder and Chief Executive Ren Zhengfei is a former People’s Liberation Army officer, a past that is seen as giving Huawei close links to the Chinese government, although the company says it is owned by its employees.

A series of attacks on Indian government websites by suspected Chinese hackers also hardened Indian authorities’ position on importing potentially sensitive Chinese equipment.

Last year, India directed state-run telecoms carrier Bharat Sanchar Nigam Ltd (BSNL.UL: ) not to procure equipment from Chinese vendors in 15 states that have sensitive land borders.

The Indian government last year banned mobile handsets without a unique identity number for fear they could be used by terrorists. Most of these so-called non-IMEI handsets were Chinese made.


Indian government ministers and officials have repeatedly denied any country-specific ban; it is mandatory for all Indian telecom carriers to seek security clearance from the telecom ministry before placing a purchase order, Chinese or otherwise.

Ultimately the telecoms ministry asks the interior ministry if it has any concerns regarding security.

Huawei (HWT.UL: ) and ZTE (0763.HK: ), the two big Chinese gear makers, both say they have not received any formal communication from the Indian government regarding the restrictions.

ZTE said it had been told by carriers that certain companies including itself had not qualified in India’s security tests.

Equipment of UTStarcom Inc (UTSI.O: ) has also not been cleared by the ministry, media reports say. UTStarcom has been focused on Asian markets, with a particular emphasis on China, and recently said it was moving its headquarters to Beijing from California.


India and China have long been wary of each other and fought a brief war in 1962. Mistrust persists, especially over the 90,000 square kilometer (35,000 sq. miles) of land in Arunachal Pradesh state that China sees as “southern” Tibet.

China also frequently directs its ire at the Dalai Lama, the exiled Tibetan spiritual leader who lives in India, and whom it accuses of being a dangerous “splittist”.

India is concerned about Beijing’s growing economic and military might.

India and China are locked in a battle of influence over the Indian Ocean region, with China creating a “string of pearls” or listening posts and investing in economies from Pakistan to Myanmar that analysts say are intended to encircle India.

India and China have also sparred over trade, with New Delhi initiating more anti-dumping investigations with the World Trade Organization than any other country.

India has banned diary products, including chocolate.


Shenzhen-based Huawei and hometown rival ZTE have operated in India for years, supplying products and services often significantly cheaper than Western rivals to Indian carriers.

Huawei more than doubled its revenue from India to about $1.4 billion in the year to March 2009, while ZTE did business of more than $1 billion, according to technology publisher CyberMedia.

India is currently auctioning third-generation (3G) spectrum, and planned 3G networks spell big business for vendors.

European vendors such as Ericsson (ERICb.ST: ) and Nokia Siemens Networks (NSN.UL: ), which still dominate the Indian market, may gain at the cost of Chinese firms.


Some analysts say China could retaliate if India sticks to its position.

China is India’s biggest trade partner and bilateral trade is expected to pass $60 billion this year. India is grappling with a deficit in China’s favor which rose to $16 billion in 2007-08 from $1 billion in 2001-02.


Unlikely, despite an influential faction within the Indian government which is hawkish toward China.

Indian Prime Minister Manmohan Singh, an economist, is known to favor building on the burgeoning trade ties between the two.

Earlier this year, Singh appointed Shiv Shankar Menon as national security adviser, replacing a former intelligence chief seen as having a more hawkish approach to regional security. This was seen as a signal that Singh wanted to reach out to Beijing.

The row will probably be resolved through dialogue, in the same manner other twitchy issues have been dealt with.

Given the huge amount of business at stake, officials on both sides will likely ensure the issue does not snowball.

Investment Research

(Additional reporting by Krittivas Mukherjee; Editing by Rina Chandran and Paul de Bendern)

Q+A: What’s behind the China-India security dispute?