Knock-Off Mobiles Threaten China’s Brand Name Sales

In the cutthroat world of low-end handset makers, legitimate Chinese brands such as Ningbo Bird are worried about knock-off brands cutting into their sales.

Intense price competition from local rivals are forcing domestic brands in China to cede their once dominant market position to foreign brands.

"A Nokia user would not be my client, but those who use Ningbo Bird handsets are very eager to try my products," said Fu Jiangang, who owns a website that sells pirated and unregistered mobile phones.

Fu currently uses a Hiphone, a blatant ripoff of Apple Inc’s popular IPhone, which is only a fraction of the original price, but he’s already thinking about upgrading.

Fu sells hundreds of handsets a month and is targeting farmers, migrant workers and other low-income users to expand his sales network.

"You can’t expect a farmer earning 10,000 yuan a year to spend 5,000 yuan on a new phone," said Fu. "But the farmer also wants phones that look fancy, can take pictures and play music."

His products are competing against other companies in the bottom third of the market like Ningbo Bird and a host of other domestic manufacturers such as Konka and Lenovo.

Citing fierce competition in the local market they once dominated, Ningbo Bird reported a loss of 34 million yuan ($4.94 million) for the first quarter.

Another domestic handset maker, Amoi, reported a 121 million yuan loss in their first quarter.

China is the world’s largest market for handsets, with Nokia now leading the market. But research firm Analysis International found that five foreign makers commanded almost 70 percent of the domestic mobile market.

Official data claims that in the southern boomtown of Shenzhen, there are more than 600 mobile phone producers and 3,000 component providers.

Zhu Xiang said the price war is "bloody". He used to run a handset plant in Shenzhen but now acts as an agent bridging overseas buyers with local producers.

Zhu said in 2006 he made 100 yuan from a handset but now prices keep dropping. "In 2007, 50 yuan, and now, less than 20 yuan."

Fu said that the falling barriers to entry have attracted an army of small manufacturers willing to compete on razor-thin profit margins, including factories that once produced TV remote controls and MP3 players.

The average price of communication devices fell almost 20 percent in May compared with a year ago, while headline consumer inflation rose 7.7 percent, according to China’s statistics bureau.

"In the last two years, we have witnessed the rise of once unknown names like K-touch and the fall of premier brands like Ningbo Bird," said Jiang Lifeng, an analyst with Beijing-based CCID consulting.

About 170 million handsets were sold in China last year, while an estimated 70 million were pirated or unregistered, Jiang noted.

The rise of competitors is taking its toll on the market.

Ren Qian, a manager with Ferex Electronics, another Shenzhen mobile phone manufacturer, said many firms were already in difficulties due to rising labor and production costs.

"The profit margin is shrinking, the cost is rising, and I see many firms are dying," said Ren.