Lava International Ltd., an Indian smartphone manufacturer, is in advanced talks with China's Huaqin Technology Co. to establish an electronics manufacturing venture in South Asia.

According to a letter from Lava to India's technology ministry obtained by Bloomberg News, the venture would seek contracts from US and Chinese customers for research and development, design, and manufacturing of electronic products. According to the letter, negotiations for the partnership are nearing completion.

The agreement would give the privately held companies clout as they compete with rivals such as Foxconn Technology Group. The Taiwanese conglomerate, which assembles phones for Apple Inc., is among the electronics firms that have expanded production capacity in India in order to diversify beyond China and take advantage of incentives offered by Prime Minister Narendra Modi as part of his ambitions to make India a manufacturing hub.

Huaqin, headquartered in Shanghai, designs and manufactures smartphones, laptops, tablets, and smartwatches for customers such as Vivo, Xiaomi Corp., Samsung Electronics Co., Lenovo Group Ltd., Amazon.com Inc., and Acer Inc. A collaboration with Lava would provide Huaqin with greater access to one of the world's fastest-growing major electronics markets, which has an abundance of labour at a lower cost than China. The agreement would provide Lava with much-needed capital and expertise as the company strives to become a formidable electronics player.

According to Lava's letter, the venture would employ more than 100,000 people and "put India on the global map for design, supply chain, and manufacturing." "It would assist in bringing the supply chain ecosystem, as well as much needed skills and technology, to India."

Lava, Huaqin, and the Indian technology ministry did not respond to requests for comment.

A partnership agreement has not been completed because details such as shareholdings are still being finalised, according to people familiar with the matter who asked not to be identified because the plan is not public. While the venture will be closely scrutinised by the Indian government, the people said it is likely to be approved because it would boost the country's status as an electronics manufacturing hub while posing no threat to national security.

A bloody clash between India and China on a disputed Himalayan border in 2020 has strained relations between the two nuclear-armed neighbours. New Delhi has subjected Chinese firms operating in the country, including Xiaomi and rivals Oppo and Vivo, to extensive financial scrutiny, leading to tax demands and money laundering allegations.

In addition, the government has used unofficial means to prohibit Huawei Technologies Co. and ZTE Corp. telecom equipment. While there is no official policy prohibiting wireless carriers from purchasing Chinese networking equipment, they are encouraged to do so. According to people familiar with the matter, India is also looking to restrict Chinese smartphone makers from selling devices for less than 12,000 rupees ($146) in order to jumpstart its flagging domestic industry.

Because of its partnership with a domestic manufacturer, the Lava-Huaqin venture would have an advantage over other Chinese manufacturers.