Guangwen Kuang, the head of administration at Vivo India, was arrested on Tuesday by India’s Enforcement Directorate (ED), a financial crimes investigation agency. Kuang, a Chinese national, was detained along with three other people in connection with a money laundering probe that began in July 2022.

The ED accused Vivo of tax fraud and said the company had remitted 624.8 billion rupees ($7.9 billion), mostly to China, in order to avoid paying taxes in India. The agency also seized $60 million from Vivo’s bank accounts during raids at 48 locations across the country.

Vivo confirmed the arrest of one employee and said it was “deeply concerned” by the situation. The company said it would “exercise all available legal options” and that it “firmly adheres to its ethical principles and remains dedicated to legal compliance.”

Vivo’s popularity in India under threat

Vivo is one of the top smartphone makers in China and India, where it ranks second behind Samsung with a 17% market share in the second quarter of 2023, according to Counterpoint Research. The company is known for its affordable and feature-rich devices that appeal to young and urban consumers.

However, Vivo’s popularity in India could be jeopardized by the ongoing investigation and the rising tensions between India and China. The two countries have been locked in a border dispute since 2020, which resulted in a deadly clash that killed 20 Indian soldiers and an unknown number of Chinese troops.

Since then, India has taken several measures to curb Chinese influence in its economy, such as banning Chinese apps, imposing stricter rules on foreign investment, and promoting domestic production. These actions have affected several Chinese businesses operating in India, including Vivo’s rival Xiaomi, which was also probed by the ED for alleged money laundering in May 2022.

Chinese media criticizes India’s ‘protectionism’

The arrest of Vivo’s executive has sparked a backlash from Chinese media, which accused India of “rising protectionism” and “hardened crackdown on Chinese companies.” The state-run tabloid Global Times said the detainment signaled a “renewed wave of anti-China sentiment” in India and warned that it could damage India’s reputation among foreign investors.

The Chinese embassy in India has also expressed its concern over the probes of Chinese firms in India, saying they have disrupted “normal business activities” and violated “the legitimate rights and interests of Chinese enterprises.” The embassy urged India to “create a fair, transparent and predictable business environment” for Chinese companies.

However, some analysts believe that the economic ties between India and China are too strong to be severed by political disputes. They argue that both countries need each other as markets and suppliers, especially in the smartphone sector, where China dominates the production chain and India offers a huge consumer base.