Chinese Infrastructure Projects Trouble India

In an apparent attempt to overcome deeply embedded suspicion and concern, the 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 $500 million in its research and development center and double its employee strength from 2,000 to 6,000 personnel (China Economic Review, January 11, 2010). Such a bold expansion from Huawei, which already has a leg up in the Indian telecommunications market but is believed to have suspect 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 that have been under the scanner of Indian security agencies (Peopledaily.com, September 8, 2009).

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 percent of the Indian market (Upiasia.com, October 8, 2009) 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 Economic Times [Delhi], July 8, 2009). The Indian government has acknowledged these concerns and issued guidelines for import of military equipment, 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. (Chinaview.cn, September 9, 2009).

Telecommunication Projects

In May 2009, Bharat Sanchar Nigam Limited (BSNL), the public sector telecommunication giant, was advised by the Ministry of Defense ‘not to award equipment contracts to Huawei and Zhong Xing Telecommunication Equipment Company Limited (ZTE) in the interest of national security’ (Indian Express, November 1, 2009). Indian security concerns arise 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 (CCP). Similarly, Intelligence Bureau (IB), 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’ (The Tribune [Chandigarh], December 27, 2009).

Likewise, in August 2009, the Indian Department of Telecommunications (DoT) issued an advisory to the mobile operators to exercise caution while installing Chinese telecom equipment in “sensitive regions” (i.e. states adjacent to India-China and India-Pakistan borders and States affected by terrorism and Naxalites) (The Hindu, August 29, 2009). 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” (The Economic Times, May 14, 2009).

Indian telecom industry experts are apprehensive about the nature of Chinese made equipment. These are suspected to contain embedded software that is programmed for spying operations (Upiasia.com. October 8, 2009). Further, the Chinese manufacturers do not provide full specification of the ‘built-in software, known as algorithms’ to the user (Upiasia.com. October 8, 2009). Thus it is difficult to detect the secret commands in the equipment that ‘makes 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 proxy 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 (NSCS) ordered the Scientific Analysis Group (SAG), an arm of the Defense Research and Development Organization (DRDO) engaged in analysis of communication systems, to conduct an inquiry into the Chinese made encryption devices supplied by Bharat Electronics Limited (BEL) to the Indian Air Force and the National Technical Research Organization (NTRO) (Indian Express, November 1, 2009). 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 (Express News Service, January 5, 2010). 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 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” (India Today [Delhi], January 14, 2010). Likewise, a classified FBI report cited by a U.S. 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" (The Daily Beast, January 13, 2010).

Maritime Infrastructure Projects

Chinese attempts to participate in Indian maritime infrastructure projects such as ports have also attracted security concerns. Interestingly, in 2005, Manmohan Singh, the Indian Prime Minster overruled security concerns over Chinese companies’ participation in infrastructure projects in India (The Financial Express, January 5, 2005). Hutchison Whampoa Limited, the Hong Kong-based conglomerate with close ties to Beijing engaged in port development, container terminal management and energy infrastructure, was invited to submit a plan to build a container terminal in Mumbai, but the project was held in abeyance. Apparently, security concerns had prevailed and since then the company had “decided to stay out of India” (Logisticsmgmt.in, September 4, 2008). 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 Company, and China Harbor Engineering Company. 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 (A&N) Islands (Indian Express, April 21, 2003). A&N 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 in 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 (SLOC).  

Political Parties React to Chinese Investments

Interestingly, 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. For instance, in 2008, Shiv Sena and the Bharatiya Janata Party, who had control over the Brihanmumbai Municipal Corporation, the civic body in Mumbai, had ordered re-tendering of the JV project between Soma Enterprises of India and China International Water and Electric Engineering Company to construct a dam across Middle Vaitarna River (Express News Service [Mumbai], September 2, 2008). 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 (BARC) at Tarapur, Hindustan Aeronautics Limited (HAL) fighter aircraft production centre, and the artillery centre at Deolali, Nashik. Interestingly, a public interest litigation (PIL) 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 (Rediffnews.com, October 12, 2006). Karat observed, "Are the U.S. 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?" (Rediff.com, October 12, 2006).

Likewise, the Karnataka state government is keen to engage Chinese companies to help develop infrastructure. Karnataka Chief Minister B. S. Yeddyurappa visited Beijing Shanghai and Guangzhou in 2009 in a bid to attract Chinese investment and technology participation in new port projects and highways (The Hindu, September 5, 2009).

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 Company Ltd's in Korba district of Chhattisgarh collapsed. The accident claimed 41 lives, and the SEPCO project in-charge and two Chinese engineers are in judicial custody in India (Dailyindia.com, January 12, 2010).              

Indian Ventures in China  

Unlike India, 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 (Sourcingline.com, December 11, 2009).  TCS began its operations in China in 2002 and by 2006, it had 66 percent stake in TCS China, a JV 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 (Niit.com, January 17, 2010) Besides, there are 5,000 Indian students studying medicine in China (Business Standard, January 17, 2010). Likewise, Ranbaxy Guangzhou China Limited (RGCL), set up in 1993, was the first Sino Indian JV. Ranbaxy sold off its stakes in China in December 2009 on account of cutting costs and improving profitability (Wsj.com, December 29, 2009).

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. It has consistently hacked into sensitive Indian commuter networks and would continue to engage in asymmetric warfare in the future (The Economic Times, January 14; The Times of India, December 30, 2009). 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 regulations 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.

[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.]