In China, Knockoff Cellphones Are a Hit

By David Barboza | THE NEW YORK TIMES
April 28, 2009

The phone's sleek lines and touch-screen keyboard are unmistakably familiar. So is the logo on the back. But a sales clerk at a sprawling electronic goods market in this Chinese coastal city admits what is clear upon closer inspection: this is not the Apple iPhone; this is the Hi-Phone.

"But it's just as good," the clerk says.

Nearby, dozens of other vendors are selling counterfeit Nokida, Motorla and Samsung phones -- as well as cheap look-alikes that make no bones about being knockoffs.

"Five years ago, there were no counterfeit phones," says Xiong Ting, a sales manager at Triquint Semiconductor, a maker of mobile phone parts, while visiting Shenzhen. "You needed a design house. You needed software guys. You needed hardware design. But now, a company with five guys can do it. Within 100 miles of here, you can find all your suppliers."

Technological advances have allowed hundreds of small Chinese companies, some with as few as 10 employees, to churn out what are known here as shanzhai, or black market, cellphones, often for as little as $20 apiece.

And just as Chinese companies are trying to move up the value chain of manufacturing, from producing toys and garments to making computers and electric cars, so too are counterfeiters. After years of making fake luxury bags and cheap DVDs, they are capturing market share from the world's biggest mobile phone makers.

Although shanzhai phones have only been around a few years, they already account for more than 20 percent of sales in China, which is the world's biggest mobile phone market, according to the research firm Gartner.

They are also being illegally exported to Russia, India, the Middle East, Europe, even the United States. "The shanzhai phone market is expanding crazily," says Wang Jiping, a senior analyst at IDC, which tracks technology trends. "They copy Apple, Nokia, whatever they like, and they respond to the market swiftly."

Alarmed by the rapid growth of counterfeits and no-name knockoffs, global brands are pressing the Chinese government to crack down on their proliferation, and are warning consumers about potential health hazards, like cheap batteries that can explode.

Nokia, the world's biggest cellphone maker, says it is working with Beijing to fight counterfeiting. Motorola says much the same. Applre Inc. declined to comment.

Even Chinese mobile phone producers are losing market share to underground companies, which have a built-in cost advantage because they evade taxes, regulatory fees and safety checks.

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