Smartphone shipment is often seen as the bellwether of China’s consumer spending, and right now, the picture isn’t very rosy.
The world’s largest market for smartphones shipped 175.1 million handsets between January and August, marking a sharp 22.9% decline year-over-year, according to research from a state-backed institution. In August alone, shipments dropped 21.9% year-over-year.
The global smartphone market as a whole is experiencing a slowdown, logging a 9% decline in the second quarter due to a mix of challenges including a COVID-struck economy, inflation and deceleration following years of frantic growth. China’s growing consumer appetite obviously played a big part in driving the boom, and now that the world’s second-largest economy is hitting a speed bump, the smartphone industry is inevitably taking a hit.
The era of economic miracles is coming to a close in China. On Monday, official data reported a 3.9% GDP growth rate from July to September, which beat forecasts but was way below the double digits that propelled the country’s economy forward for three decades.
China is not only the world’s largest market for handset users but is also its largest phone producer, with home-grown brands like Huawei, Oppo, Vivo and Xiaomi rising over the years to rival Apple and Samsung. These domestic phone markers began seeking overseas expansion well before their home market start cooling down. And they’ve successfully carved out their international market share and have in recent years consistently shared the top five spots alongside Apple and Samsung.
The smartphone industry is notoriously cut-throat, with modest margins, so it wasn’t unsurprising when Xiaomi and Oppo, which are long known for selling budget phones, started offering higher-end models in recent years. Huawei established a strong presence in the premium handset space before the U.S. cut off its supply of critical chipsets and key Android services. Having seen how overdependence on advanced U.S. technologies and geopolitical tensions has wrecked Huawei’s revenues, Oppo and the likes are rushing to work on their own smartphone processors.
The need for Chinese firms to have their own high-end chips is getting dire as the Biden administration hit China with possibly the strictest export controls earlier this month. Analysts are still parsing the impact of the policy, but initial observation shows that the new rules will not only restrict Chinese companies’ access to high-end U.S. chips but will also bar their access to chip-making equipment, which will hobble the country’s ability to develop such advanced technologies.
