Chinese electronics maker Xiaomi, facing rising challenges from Indian regulators and economic headwinds, lost share in the world's second-largest smartphone market in the first quarter but remains No 1 overall in the country. Xiaomi’s latest run-in with Indian authorities came over the weekend, when the Enforcement Directorate, the country's financial investigation agency, seized US$725 million from the Chinese firm, accusing it of breaking foreign exchange laws by making illegal remittances abroad, after launching an investigation in February. The move came amid rising tensions between the two countries and as Indian authorities increased their scrutiny of Chinese tech companies. Last month, the former head of Xiaomi India, Manu Jain, was also summoned by the directorate for questioning over tax related compliances and company structure. China smartphone sales turn in worst-performing quarter since 2020 Xiaomi, while retaining its top spot in India’s smartphone market in the first quarter of this year, has nonetheless seen a slump in market share amid headwinds. The company held 23 per cent of India’s smartphone market in the first quarter, down from 26 per cent in the same period in 2021, according to a report published by research firm Counterpoint last week. Samsung Electronics was the No 2 player in the first quarter with 20 per cent market share, while other major Chinese brands Realme, Vivo and Oppo followed with 16 per cent, 15 per cent and 9 per cent respectively, the report showed. Ivan Lam, a Hong Kong-based senior analyst at Counterpoint, said the latest development shows that geopolitical tensions and local policies remain the biggest risks for Chinese smartphone brands that have been seeking to expand overseas, especially in developing markets, where local rules and regulations are “still on their way to be perfected”. However, Lam does not think the latest move by Indian authorities was “very negative” for Xiaomi’s overall development because regulatory problems are not unique to Chinese companies. For example, US tech giants, including Apple and Google, face antitrust investigations in Europe. India’s smartphone shipments witnessed their first-ever decline in the first quarter, down 1 per cent from the same period last year, in large part due to supply disruptions arising from Covid-19 lockdowns in China. That, along with the combined 63 per cent market share of the top four Chinese vendors, shows the importance of Chinese smartphone brands in India, Lam added. Xiaomi is also battling headwinds outside India. Its worldwide smartphone shipments dropped 17.8 per cent year on year in the first quarter, and its share of the mainland China market declined 18.4 per cent, according to data published last week by IDC. Apple to accelerate reduction in supply chain reliance on China amid lockdowns Xiaomi faces macro risks in China and globally, including disruptions caused by Covid-19 lockdowns, the impact of Russia's invasion of Ukraine on smartphone sales, and a slowing global economy, according to Dan Baker, senior equity analyst at Morningstar. Some of Xiaomi’s biggest rivals have been gaining market share, Baker said. In China, Huawei Technologies Co's spin-off Honor increased its smartphone shipments by 292 per cent year on year in the first quarter, while foreign rivals Samsung and Apple also gained global market share in the first quarter.