Has China hit peak smartphone?

Written by Giorgio Milki || 22 Feb 2018

In 2017, the Chinese smartphone market saw its first ever decline, with -4% YoY growth in smartphone shipments and -4.9% YoY growth in smartphone sales.

Why the decline?

The decline in the world’s biggest smartphone market is being blamed on several factors, including buyer saturation and manufacturers only offering minor upgrades on existing phones. Despite this overall decline, it is worth noting that certain manufacturers have still seen growth in 2017. In fact, the smaller players suffered the most and saw their figures drop, as the top five players grew their market share.

How has this affected manufacturers?

Seemingly unaffected by the apparent market saturation, Huawei continued its impressive growth spurt with 24 million shipments in Q4 of 2017, translating to a 9% growth over the rest of the market as a whole. US tech giants Apple also had an impressive year in China, the highly anticipated release of the iPhone X and iPhone 8 helped the foreign firm leap ahead of China’s Xiaomi and into 4th place, with over 13 million shipments in the fourth quarter of 2017.

What has been the reaction?

In light of the decline in domestic growth, many Chinese smartphone manufacturers have decided to look at overseas markets with varying degrees of success. India has proved an immensely appealing and welcoming market due to its similarly large population and growing middle class. Xiaomi may have lost 4th place to Apple in China, yet it managed to reach the top spot in India in last quarter of 2017, pulling ahead of Samsung. In addition to this, Xiaomi, reached USD $1 billion in yearly revenue from India for the first time in 2016 and increased its sales by 232%. Other Chinese companies also had impressive figures to show from their Indian expansion, Lenovo increased its market share by 11% and Oppo’s shipment totals to India grew by over 1,500%.

Contrasting with their Indian success, Chinese smartphone manufacturers have struggled to gain a foothold in the lucrative American market. The US Government’s fears of phone tapping and other security breaches through Chinese phones has been detrimental to Chinese expansion there. Despite assurances from Huawei’s CEO, Richard Yu, that the company guarantees the “highest standard in privacy and security”, the second largest American carrier, AT&T, was forced to cancel its reported plans to sell Huawei smartphones due to government pressure.  

What are the ripple effects on mobile payments?

The unforeseen decline of the Chinese smartphone market may also have a negative impact on mobile payment giants WeChat and Alipay’s domestic growth. A saturated market for smartphones could signal a decline in user growth for the companies, as they rely on the devices for their payment services. Tencent and Alibaba are seemingly aware of this however, as they have both embarked on extensive overseas mergers and acquisitions. However, similarly to Huawei, Alibaba has been side-tracked in its efforts to enter the US market. After failing to gain regulatory approval in the US, Alibaba’s Ant Financial saw the collapse of its $1.2 billion deal for Dallas-based MoneyGram. The collapse is a huge blow, as the deal would have added a network of 350,000 agent locations in more than 200 countries and territories.

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