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The future of mobile phones in
China
BEIJING - China's
mobile phone industry, which grew by more than a
quarter in both production and sales in 2004, is
expected to keep growing strongly in 2005, thanks
to rapid expansion of domestic demand and a more
favorable macroeconomic environment. But the
current state of the industry features both
opportunities and challenges.
The
overall environment
China's fixed asset
investment in the telecom sector amounted to 217.3
billion yuan ($US262.5 million) in 2004, an
increase of 20% over 2003. This high level of
infrastructure spending will create good
opportunities for the mobile communication
equipment manufacturing industry.
China
will also issue third generation (3G) licenses in
2005, and this, plus investment by domestic
telecom operators in 3G, should stimulate market
demand. The number of new mobile communication
users in 2005 is expected to exceed 60 million.
Also, continued opening of the telecom sector
should lead to further increases in foreign
investment in the sector.
According to
official statistics, China produced 233.446
million mobile phones and sold 230.37 million
units in 2004, up 25.2% and 29.1% respectively
over 2003. Exports reached 146.05 million units,
up 53.2%. Of this total output, GSM phones
accounted for 212.69 million units, up 31.4%, and
CDMA phones accounted for 20.755 million units,
down 6.4%. Of the total sales, GSM phones
accounted for 209.7 million units, up 31.1%, and
CDMA phones accounted for 20.67 million units,
down 5.3%.
The quick expansion in
production and sales also has led to a dramatic
rise in the mobile phone penetration rate, which
hit 25.9 units per hundred persons by the end of
2004, a sharp increase of 19.1 units over the
figure for 2000. Global mobile phone production in
2004 reached 664.5 million units, of which some
35.1% were made in China. The number of mobile
phone users in China had reached 334.8 million, or
20% of the global total, by the end of 2004,
including 64.87 million users newly added in 2004.
Higher penetration expected
Although the market penetration of mobile phones
at the end of 2004 represented a stunning rise
from only a few years earlier, the rate of 25.9%
was still four percentage points lower than the
target of 30% set by the government's Tenth
Five-Year Plan (2001-05). Also, the rate was still
much lower than the 70-80% rate typical in
developed nations. Thus, great upside demand
potential exists.
According to statistics,
newly added mobile phone users in China numbered
65 million in 2004, including 20 million replacing
old sets with new ones. Domestic mobile phone
market capacity was estimated at some 85 million
units, and exports hit 146.05 million units in the
year, leaving new inventories of just three
million units, which suggests that production
approximated market demand and did not reflect
irrational over-production.
In 2005, there
will be a substantial increase in mobile phone
demand from rural areas, as government policies to
increase farmers' incomes come into effect. Last
year, the per capita cash income of rural
households surged 6.8% to 2,936 yuan, the fastest
increase in recent years, and this growth momentum
is expected to continue in 2005. Rural areas are
expected to become the main market to pull up the
domestic mobile phone demand in the next few
years.
Meanwhile, the constant development
of new mobile phone technologies and functions,
and the increasing popularity of data services,
will help accelerate demand. More and more mobile
phones will offer multimedia and data functions,
such as mobile phone TV and electronic banking.
The appearance of innovative products will enhance
the quick expansion of the user base.
Statistics show that the number of new
mobile phone models capable of network access in
2004 hit 680, an increase of 19.2% over the figure
for 2003. The launch of new products and new
models will accelerate replacement of existing
handsets, further stimulating market demand and
creating a new market space. The mobile phone
industry in China is currently undergoing two
major transitions: mobile phone manufactuerers are
shifting from an extensive expansion mode to a
mode of intense competition between different
models; and mobile phone operators are shifting
from second generation (2G) to 3G technology.
Handset manufacturing base
China's exports of mobile phones have maintained a
tremendous growth rate of more than 50% in the
last three years, and this momentum is likely to
last till 2006. It is predicted that the country's
mobile phone export volume will top 160 million
units this year, out of an estimated output of 260
million units. In 2004, exports reached 146.05
million units, up 54.3% over 2003, and accounting
for 63.3% of total handset sales. The export
growth rate was nine percentage points higher than
that of 2003 over 2002. Also, the contribution of
foreign-invested enterprises to exports rose
further. In 2004, four foreign-invested
enterprises each posted exports of over 10 million
units, accounting for over 60% of the
foreign-invested enterprises total.
Domestic mobile phone makers also made
greater efforts to export, while still vying for
the domestic market. In 2004, the mobile phone
exports of domestic brands reached 6.363 million
handsets, up three-fold over 2003. Shanghai-listed
Ningbo Bird in particular posted an export volume
of 3.377 million units, surging 68% year on year,
and accounting for 53.1% of the total exports of
domestic brands.
Domestic-foreign
competition
While mobile phone market
capacity has been expanding rapidly, competition
between domestic and foreign mobile phone
manufacturers, as well as within the two groups,
has become increasingly fierce. A new pattern of
competition was seen in 2004. The slide of
foreign-invested manufacturers' market share in
China rallied. From 2000, the local market share
of foreign-invested mobile phone manufacturers
declined from a peak of over 80% to a bottom of
46% in 2003. In 2004, that figure rallied 9.5
percentage points to reach 55.5%. The local market
share of Nokia, for instance, hit 15%, up 3.9
percentage points over 2003, and that of Ericsson
rose 1.8 percentage points to 2.9%. The top four
foreign-funded makers jointly took a 28.3% share
of the Chinese mobile phone market.
Meanwhile, the export share of
foreign-funded manufacturers changed drastically.
In 2004, the export market share of Nokia, which
has led all manufacturers in China in export in
recent years with a share of over 40%, plunged to
19.9%, down 22.7 percentage points from 2003; that
of Motorola, meanwhile, climbed 6.5 percentage
points to 22.8%.
The situation for
domestic-brand manufacturers was just the
opposite, with a smaller share on domestic market
but quicker export growth. In 2004, the domestic
market share of domestic brand mobile phones
dropped to 44.5%, from 54% in 2003. The top three
domestic brand makers had a combined domestic
market share of 22.5%, down from 31.6% in 2003.
The domestic market shares of Bird, TCL and Konka
fell 4, 4.7 and 0.4 percentage points
respectively.
Domestic-brand mobile phone
manufacturers have developed rapidly since 2002,
underpinned by rapid progress in technological
research and development. They have mastered the
core technology for second-generation mobile
phones and their research and development
(R&D) capacity for third-generation products
is also maturing. Of the 600 new 2G phone models
launched in 2004, nearly 70% were designed by
domestic manufacturers.
As domestic
manufacturers strengthen, a new round of
reshuffling in the mobile phone manufacturing
industry seems inevitable. Foreign giants like
Sony-Ericsson, Nokia and Siemens are all
strengthening their R&D capacity in China to
sharpen their competitiveness in the country. At
the same time, domestic and foreign manufacturers
are increasing their mutual cooperation. For
example, TCL is cooperating with Alcatel, and Bird
is collaborating with Siemens.
Future
challenges
The mobile phone manufacturing
industry is also facing great challenges from
"smart phones", known as Xiaolingtong in Chinese,
which have seen high growth in recent years due to
their cheaper cost per call. In 2004, the number
of smart phone users increased by 27.93 million,
up nearly 200% over 2003. At present, there are 14
Xiaolingtong manufacturers in China, with an
output of 20.61 million units in 2004, and the
number of Xiaolingtong users has topped 70
million.
Meanwhile, the State Development
and Reform Commission (SDRC), China's main
economic planning organ, has promulgated
regulations to implement a ratification system for
mobile phone manufacturers, putting an end to the
former practice of allowing production only by
designated enterprises. Under the new system, a
mobile phone maker will be permitted to make
products only after reaching certain set
requirements and being ratified. The effect will
be to make it easier to form new handset
manufacturing ventures; this will, of course,
present a challenge to the former designated
manufacturers, but an opportunity to new entrants.
By 2004, 37 mobile phone manufacturers
were operating in China. They reaped sales revenue
of 326.81 billion yuan in 2004, up 25.2% over
2003, and their profits totaled 14.01 billion
yuan, up only 7.6%, which indicates that the
profitability of the industry is declining as it
matures.
(Asia
Pulse/XIC) |
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