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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
