India launches probe into MG Motor as scrutiny on Chinese firms widens

India has begun an inquiry into MG Motor India Private Ltd. over alleged financial irregularities, according to people with knowledge of the matter, deepening a scrutiny of Chinese firms operating in the country.

The probe against the local unit of the Chinese carmaker SAIC Motor Corp Ltd. has been initiated by India’s Ministry of Corporate Affairs. The scrutiny started after a detailed analysis of the company’s financial statements indicated suspicious related-party transactions, alleged tax evasion, under and over-invoicing of bills and other irregularities, the people said, asking not to be identified as the matter is not public. 

The company’s top management, including directors, managing director and auditors have been summoned next month by the ministry seeking more clarification, the people said.

The move follows similar action against other China-based firms including Xiaomi Corp., local units of ZTE Corp., Oppo and Vivo Mobile Communications Co Ltd. amid continued hostility between the two nuclear-armed neighbors since 2020 when the deadliest fighting in decades erupted along their disputed Himalayan border. 

MG Motor said it has been a sent a notice seeking clarifications on why the company posted an operational loss in the first year of business in 2019-2020.

“We fully cooperate with the government authorities on all issues and are in process of providing the desired records and information to the Registrar of Companies within the stipulated time frame,” the company said in a statement.

The company added that it is impossible for any automobile company to be profitable in the first year of operations. 

“This is because of the huge capex 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,” MG Motor said, adding that its accounts were audited.

The ministry declined to comment for this story.

Prime Minister Narendra Modi’s government has banned more than 300 Chinese mobile applications, including shopping services from Alibaba Group Holding Ltd., the TikTok short video hit from ByteDance Ltd. and apps used on Xiaomi phones. 

The ministry is already investigating the account books of more than 500 Chinese companies to look into allegations of significant financial impropriety, Bloomberg News had reported earlier.