Indian smartphone maker Lava International Ltd. is in advanced talks with China’s Huaqin Technology Co. to create an electronics manufacturing venture in India.

The venture would aim to win contracts from US and Chinese customers for research and development, design, and manufacturing of electronics products, according to a letter from Lava to India’s technology ministry seen by Bloomberg News. Talks for the partnership are close to being completed, according to the letter.

Lava-Huaqin venture

The pact would give the closely held companies heft as they seek to take on rivals, such as Foxconn Technology Group. The Taiwanese giant, which assembles phones for Apple Inc., is among electronics companies that have built out production capacity in India to diversify beyond China and take advantage of incentives that are part of Prime Minister Narendra Modi’s aspirations to make India a manufacturing hub.

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Shanghai-based Huaqin designs and makes smartphones, laptops, tablets, and smartwatches for Vivo, Xiaomi Corp., Samsung Electronics Co., Lenovo Group Ltd., Inc. and Acer Inc. A partnership with Lava would give Huaqin deeper access to one of the world’s fastest-growing major electronics markets that has an abundance of labour cheaper than that in China. For Lava, the pact would bring in much-needed capital and expertise as the company seeks to become a formidable electronics player.

The venture would employ more than 100,000 people and “put India on the global map for design, supply chain, and manufacturing,” Lava said in the letter. “It would help bring the supply chain ecosystem and much-needed skills and technology to India.”

A partnership agreement hasn’t been completed as details such as shareholdings are being finalized, people familiar with the matter said, asking not to be named as the plan isn’t public. While the venture will be closely scrutinized by the Indian Government, it is likely to win approval because it would elevate the country’s status as an electronics manufacturing hub and doesn’t threaten national security, the people said.

India-China relationship

A bloody skirmish between India and China on a disputed Himalayan border in 2020 has led to a frosty relationship between the two neighbours. New Delhi has subjected Chinese firms operating in the country, such as Xiaomi and rivals Oppo and Vivo, to close scrutiny of their finances, which has led to tax demands and money laundering allegations.

The Government has also used unofficial means to ban Huawei Technologies Co. and ZTE Corp. telecom equipment. While there’s no official policy prohibiting Chinese networking gear, wireless carriers are encouraged to purchase alternatives. India is also seeking to restrict Chinese smartphone makers from selling devices cheaper than ₹12,000 to kickstart its faltering domestic industry, people familiar with the matter have said.

The Lava-Huaqin venture would have an advantage over other Chinese manufacturers by its association with a domestic producer.