In an apparent attempt to overcome deeply embedded suspicion and concern,
Chinese telecommunication giant Huawei has pledged to expand its operations in
Bangalore, the Silicon valley of India. In the next five years, Huawei plans to
invest US$500 million in its research and development center and boost its
employee strength from 2,000 to 6,000 personnel.
Such a bold expansion from Huawei, which already has a leg up in the Indian
telecommunications market but is believed to have ties with the Chinese
People’s Liberation Army (PLA), could be a welcome development for other
Chinese state-owned companies
wanting to do business in India but which have been under the scanner of Indian
security agencies.
In the past, several proposals by Chinese companies for investment and
technology participation in India have been blocked due to security concerns,
and on numerous occasions Chinese-made equipment rejected along similar
grounds. This is notwithstanding the fact that most Chinese companies are
competitive and have quoted the lowest price during the tendering process.
Nevertheless, Chinese telecommunication companies account for nearly 20% of the
Indian market and several major Indian telecom operators have installed Chinese
equipment and sub-assemblies such as encoders, filters, receivers and
transmitters in their network architecture.
There is a general belief in India that foreign companies engage in economic
and military espionage through bribes. Sensitive information meant to be secret
is stolen and can undermine national security. The Indian government has
acknowledged these concerns and has issued guidelines for import of military
equipment and for foreign direct investments including joint ventures,
particularly in infrastructure projects [1]. In certain cases, the government
has ordered investigations into earlier acquisitions from foreign sources to
ascertain if national security had been compromised. The Chinese have
questioned Indian policy of imposing restrictions on Chinese products and
infrastructure projects.
Telecommunication projects
In May 2009, Bharat Sanchar Nigam Ltd (BSNL), the public sector
telecommunication giant, was advised by India's Ministry of Defense "not to
award equipment contracts to Huawei and ZTE (Zhong Xing Telecommunication
Equipment Co Ltd) in the interest of national security". Indian security
concerns arose from the fact that the Chinese company is owned by Ren Zhengfei,
a former PLA officer who is alleged to have close links with the Chinese
Communist Party.
Similarly, the Intelligence Bureau, the premiere Indian internal intelligence
agency, was also concerned about Huawei and had noted "BSNL should not award
contracts to Chinese companies, as these companies are known to have links with
the Chinese state and security apparatus and, therefore, their presence in this
critical sector has national security implications in a variety of ways".
Likewise, in August 2009, the Indian Department of Telecommunications issued an
advisory to the mobile operators to exercise caution while installing Chinese
telecom equipment in "sensitive regions" (ie states adjacent to the India-China
and India-Pakistan borders and states affected by terrorism and Naxalites, or
far-left often insurgent groups). Significantly, the Indian Minister of State
for Communication and Information Technology had observed, "The government will
not hesitate to act against such telecom vendors or equipment suppliers who are
found compromising with our security. The Union Home Ministry and
Communications and IT Ministry is closely monitoring the situation, and all
steps would be taken to address concerns raised by intelligence agencies".
Indian telecom industry experts are apprehensive about the nature of
Chinese-made equipment. It is suspected to contain embedded software that is
programed for spying operations. Further, the Chinese manufacturers do not
provide full specification of the "built-in software, known as algorithms" to
the user, according to Upiasia.com. Thus it is difficult to detect the secret
commands in the equipment, making "it difficult to apply any kind of check-back
mechanism". In that context, India does not have technologically advanced
systems to screen rogue technology equipment. Besides, Indian technological
prowess to trace illegal telecommunication networks is still in its infancy.
Military concerns
Indian defense forces are mostly concerned about Chinese-made sub-assemblies in
military hardware, particularly those in communication devices. There are
concerns that China may engage in information warfare, a key component of
Chinese military strategy, and use Chinese-made systems and assemblies as
proxies to break into the Indian military communication network and computer
systems. Further, China has upgraded its military infrastructure along the
India-China border and there have been regular intrusions by the PLA across the
line of control.
In 2009, the Indian National Security Council Secretariat ordered the
Scientific Analysis Group, an arm of the Defense Research and Development
Organization engaged in analysis of communication systems, to conduct an
inquiry into the Chinese-made encryption devices supplied by Bharat Electronics
Ltd to the Indian Air Force and the National Technical Research Organization .
As a result, the Indian Army and the Navy were ordered to report any Chinese
encryption devices in their systems and assemblies.
In January this year, the Indian Navy stopped the installation of a Chinese
made 10-cm S-band Doppler radar system imported by the Indian Meteorological
Department for real-time monsoon predictions. The navy was concerned about
allowing Chinese technicians to be present in sensitive zones. This has delayed
installation of 11 other radars imported from the same Chinese company.
At another level, Chinese hackers have been very active against Indian computer
systems and have on a regular basis attacked sensitive targets. According to
the chairman of the Indian Cyber Law and IT Act Committee, "China is very
active in cyberspace. It has raised a cyber army of about 300,000 people and
their only job is to intrude upon secured networks of other countries. All this
is all aimed at supremacy. Every country must set up cyber armies to counter
China." Likewise, a classified report by the US Federal Bureau of Investigation
report cited by a US organization has noted that China has secretly developed
an army of 180,000 cyberspies that "poses the largest single threat to the
United States for cyberterrorism and has the potential to destroy vital
infrastructure, interrupt banking and commerce, and compromise sensitive
military and defense databases".
Maritime infrastructure projects
Chinese attempts to participate in Indian maritime infrastructure projects such
as ports have also attracted security concerns. Yet in 2005, Indian Prime
Minister Manmohan Singh overruled security concerns over Chinese companies'
participation in infrastructure projects in India. Hutchison Whampoa Ltd, a
Hong Kong-based conglomerate with close ties to Beijing and engaged in port
development, container terminal management and energy infrastructure, was
invited to submit a plan to build a container terminal in Mumbai, The project
was held in abeyance. Apparently, security concerns have prevailed and since
then the company has "decided to stay out of India".
Again, in 2006, the Indian government cancelled the $1.4 billion Vizhinjam
Deep-sea Container Transshipment Terminal project awarded to JV Zoom
Developers, Mumbai, Kaidi Electric Power Co, and China Harbor Engineering Co.
Apparently, the government did not approve the project on security grounds
since the Chinese companies had business interests in Pakistani ports.
Offshore oil exploration
India also remains cautious about Chinese bidding for Indian offshore projects.
In 2003, few countries including China were debarred from tendering in the 25
blocks offered for exploration to foreign companies under NELP IV (New
Exploration and Licensing Policy) in the Andaman and Nicobar Islands. The
islands are strategically important to India and host sensitive military
infrastructure. Likewise, India is also concerned about Chinese offshore oil
exploration activities in the Mannar Basin off east Sri Lanka.
Indian naval experts argue that critical underwater data could be generated by
Chinese companies through offshore projects and support Chinese submarine
operations [2]. Further, this underwater data gains greater salience for any
future Chinese plans to deploy submarines in the Indian Ocean to protect its
sea-lanes of communication.
Political parties react to Chinese investments
Indian political parties have also reacted to the Chinese investment plans in
India. While some remain apprehensive about Chinese participation in
infrastructure projects in their respective states, others are supportive and
have even engaged in lobbying for Chinese projects.
In 2008, Shiv Sena and the Bharatiya Janata Party, who had control over the
Brihanmumbai Municipal Corporation, the civic body in Mumbai, ordered
re-tendering of a joint venture project between Soma Enterprises of India and
China International Water and Electric Engineering Co to construct a dam across
the Middle Vaitarna River. It was observed that a Chinese company should not be
allowed to operate in areas that had vital installations such as the Bhabha
Atomic Research Centre at Tarapur, the Hindustan Aeronautics Ltd fighter
aircraft production center, and the artillery center at Deolali, Nashik. Public
interest litigation was filed in the Bombay High Court against dam construction
by the Chinese company. The court dismissed the petition after civilian
officials argued that "relevant scrutiny processes" had been taken into
account.
Unlike Shiv Sena, the left-leaning parties in India have been lobbying for
Chinese investments in infrastructure projects. Prakash Karat, the general
secretary of the Communist Party of India (Marxist), had sought the prime
minister’s intervention after Chinese companies had been barred from
participating in the Vizhinjam Deep Water International Transhipment Terminal
in Kerala. Karat observed, "Are the US companies, which have projects in
Pakistan, disallowed to take up port projects in India? If you are allowing
other countries to bid, why stop China? If American companies can take up work,
both in India and Pakistan, why bar the Chinese companies?".
Likewise, the Karnataka state government is keen to engage Chinese companies to
help develop infrastructure. Karnataka Chief Minister BS Yeddyurappa visited
Beijing, Shanghai and Guangzhou in 2009 in a bid to attract Chinese investment
and technology participation in new port projects and highways.
At another level, infrastructure-related accidents have led to setbacks in
Chinese investments in India. Chinese company Shandong Electric Power
Construction Corp (SEPCO) has suspended work after the chimney they were
building at Bharat Aluminium Co's plant in Korba district of Chhattisgarh
collapsed. The accident claimed 41 lives, and the SEPCO person in chare of the
project in-charge and two Chinese engineers are in judicial custody in India.
Indian ventures in China
Unlike India's view of Chinese companies, China is receptive to Indian
companies' participation in the software industry. For instance, Tata
Consulting Services Ltd (TCS), India’s top IT services provider, has plans to
enter the Chinese energy and utility outsourcing industries and increase its
staff strength from 1,100 to 5,000 personnel by 2014. TCS began its operations
in China in 2002 and by 2006 it had 66% stake in TCS China, a joint venture
with three other Chinese firms.
NIIT, a leading India talent development institution, has business interests in
183 education and training locations in 25 provinces and cities in China. There
are also 5,000 Indian students studying medicine in China. Likewise, Ranbaxy
Guangzhou China Ltd, set up in 1993, was the first Sino-Indian joint venture.
Ranbaxy sold its stakes in China in December 2009 on account of cutting costs
and improving profitability.
Conclusion
The Indian government is caught in a dilemma over Chinese investment and
technology participation. On the one hand, the security establishment is
apprehensive of the Chinese ability to engage in cyber warfare and activate
embedded malicious software at their time of choosing. The Chinese have
consistently hacked into sensitive Indian commuter networks and, according to
reports in The Economic Times this month and The Times of India last month, it
is believed they will continue to engage in asymmetric warfare.
On the other hand, there is a critical necessity to build infrastructure to
sustain economic development. In spite of Huawei's $500 million effort, given
China's growing assertiveness in South Asia, India’s security concerns will
deepen and thus lead to further regulation of Chinese investments in India's
infrastructure.
Notes
1. Manual on "Industrial Policy and Procedures in India", Ministry of Commerce
and Industry, Government of India, New Delhi, May 2003.
2. Author's discussions with retired Indian navy officers on January 10, 2010.
Vijay Sakhuja, PhD, is Director (Research) at the Indian Council of World
Affairs, New Delhi. The views expressed in the above article are the author’s
own and do not reflect the policy or position of the Indian Council of World
Affairs.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
