China's Mobile Phone Market Faces Oversupply

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Last updated at: (Beijing Time) Friday, August 29, 2003

China's Mobile Phone Market Faces Oversupply

At first glance, the news looks good for domestic cell phone manufacturers: For the first time ever, mainland consumers are buying more handsets from Chinese companies than from their foreign rivals.

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At first glance, the news looks good for domestic cell phone manufacturers: For the first time ever, mainland consumers are buying more handsets from Chinese companies than from their foreign rivals.

Industry insiders and analysts, however, are predicting over production will lead to a price war and push many companies out of the market altogether.

Domestic companies sold more than 80 million handsets during the first half of this year, giving them 55.28 percent of the mainland market, reported the Ministry of Information Industry.

Ningbo Bird Co Ltd unseated Motorola Inc to become the largest handset supplier on the domestic market. The Zhejiang Province-based company controlled 15.01 percent of the market in the first half of 2003, followed by Motorola at 14.21 percent and TCL at 11.64 percent according to ministry figures.

Many manufacturers, however, are worried that oversupply will weigh down prices and enhance already-tough competition among handset makers. Peng Xinmiao, vice president of Shanghai DBTEL Industrial Co Ltd, estimates more than 20 domestic firms will be pushed out of the market by next year. There are currently 37 handset makers, both foreign and domestic, in China.

Some insiders speculate that unsold handsets are beginning to pile up in warehouses around the country.

IT Consultant CCID Consulting Co Ltd predicts production capacity of mobile phones in China will hit 170 million units next year, but domestic demand will be lucky to reach 70 million phones in 2004.

"The ministry's sales figures fail to paint a true picture of the market, as many home-made handsets are in the distributors hands," said Sang Hui, a telecom analyst with CCID. "In the future they will meet a very tough situation as Chinese companies now sell very few phones to overseas markets, while foreign companies' Chinese plants are serving global sales."

"Until next June, about 70 million Chinese people will buy new mobile phones, far less than the domestic com-panies' current production capacity of over 100 million," said the former mar-keting director of a Hangzhou-based manufacturer. The man, surnamed Zhong, asked that the company's name not be used in this story.

With competition rising, average prices slid to 1,767 yuan in the first half of this month, 13.2 percent lower than a year ago according to CCID.

TCL Communication Equipment Co Ltd, the third-largest handset supplier on the mainland, is already feeling the pinch. Its profit margin was 20 percent during the first half of this year, a 6 percentage point drop year on year.

Some companies, however, remain optimistic.

"Domestic handset companies have an advantage compared with second- and third-tier foreign brands, and well-established Chinese companies will occupy 70 percent of domestic market share in the future," Bird stated in response to an e-mail request for an interview by Shanghai Daily.

The company noted that Chinese producers have lower labor and land costs than their rivals, so they should be able to survive the price war.

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