BENGALURU - India has begun an inquiry into China-owned carmaker MG Motor India over alleged financial irregularities, in yet another instance of deepening scrutiny of Chinese firms operating in the country. 

The company has responded that it is fully cooperating with the authorities by providing the “desired records and information” within the deadline. 

MG Motor India is the local subsidiary of China’s state-owned automotive company SAIC Motor.

It was set up in India in 2017 to sell British MG marque cars such as Astor, Hector and Gloster.

In 2019, it began manufacturing operations in Halol, in the western state of Gujarat. 

India’s Ministry of Corporate Affairs initiated an inquiry into MG Motor in October about alleged tax evasion and irregularities in invoicing and some transactions, reported The Economic Times, citing sources.

The Registrar of Companies that oversees companies in India has since summoned the company’s directors and auditors for clarifications.

An MG Motor spokesman told The Straits Times that the government has asked for the reasons behind its losses in 2019-2020, the first year of its operations.

The company stated that “it is impossible for any automobile company to be profitable in the very first year of its operations”.

“This is because of the huge (capital expenditure) investment required and the long gestation period in a highly competitive market such as India, where many multinationals have struggled for decades and have accumulated losses.”

It added: “MG Motor India is a law-abiding, professionally managed company that adheres to the highest standards of compliance and governance and is committed to transparency.” 

The company reported a 53 per cent year-on-year rise in sales in October, at 4,367 units.

The probe into MG Motor’s finances is part of a series of investigations this year into alleged tax evasion and money laundering by Chinese firms operating in India. 

Other Chinese firms, including electronics makers Xiaomi, Oppo and Vivo and telecoms company ZTE, have also faced probes in India over alleged money laundering, illegal remittances and the reporting of false losses in order to avoid paying taxes in India.

The Enforcement Directorate, India’s financial crimes watchdog, has frozen around US$670 million (S$940 million) of Xiaomi’s bank assets under foreign exchange laws since April.

In July, it froze 119 bank accounts linked to Vivo, even as the company’s directors fled the country.

Both companies have denied wrongdoing and challenged the directorate’s actions in Indian courts. 

India is a key market for these Chinese companies, and they dominate some growing Indian sectors.

Xiaomi is India’s biggest smartphone player, with a 19 per cent market share, followed closely by Samsung and Vivo.

The other Chinese phone giants realme and Oppo have 16 per cent and 11 per cent market shares, respectively. 

After the Enforcement Directorate conducted raids on 44 Vivo offices and production sites across India in July, the spokesman for the Chinese Embassy in India, Mr Wang Xiaojian, said: “The frequent investigation of Chinese companies by the Indian side not only disrupts the normal business activities of the companies and the goodwill of the companies, but also impedes the improvement of the business environment in India.”

Mr Wang added that the actions would “chill the confidence and willingness of market entities from other countries, including those from China, to invest in India”.

Separately, on Sept 11, the federal government’s Serious Fraud Investigation Office arrested a man accused of masterminding a racket by creating numerous shell companies with Chinese links and providing “dummy directors” to run the fraudulent businesses.

The crackdowns against Chinese companies started after border hostilities between the countries’ militaries began in 2020.

The Indian government went on to ban hundreds of Chinese apps, and tightened policies on foreign direct investment from China.

Trade between the two countries has, however, been largely on the rise, with India-China trade hitting US$100 billion in January to September, according to trade data released by Chinese Customs. 

India imports US$75 billion more than it exports from China.

The government has imposed import duties and pushed for more domestic manufacturing to curtail reliance on key Chinese imports, which include active pharmaceutical ingredients, electronic components, telecoms instruments and computer hardware.