November 27, 2013 7:00 pm JST

'Shamsung' smartphones strain India-China ties

TAKAFUMI HOTTA, Nikkei staff writer

Stores in Mumbai specialize in low-priced Chinese products such as fake cell phones.

MUMBAI, India -- A looming problem for China-India economic relations looks like an iPhone, sounds like an iPhone and acts like an iPhone. But it isn't an iPhone.

     A flood of counterfeits and knockoffs from China, alongside legitimate goods, are drowning Indian industry. Chinese companies are ripping away chunks of India's low-end market.

     Signs of local disgruntlement are growing. India's top Chamber of Commerce body earlier this year sounded a warning about the coming crisis for national industry if nothing is done to stop the China crisis.

     The proliferation of fake products supplied by underground Chinese makers is conspicuous in India's fast-growing smartphone market. But Chinese influence cuts a wide swath across the industrial landscape of the nation. Low-priced imports from China are causing sharp falls in the prices of all kinds of consumer electronics and household electric appliances in the subcontinent.

Hurting the little guy     

Made-in-China products are also flooding into Indian markets served mainly by small and midsize local companies. The deluge of Chinese imports is beginning to further strain a tense bilateral relationship, which is traditionally prickly because of a territorial dispute.

     Indian consumers are for now embracing cut-price Chinese offerings. That may not be the case if they find themselves out of work because of relentless competition from low-cost manufacturers over the border.

     Take a walk through an Indian market and the scale of the issue becomes clear. Fake Chinese cellphones are clearly visible in the sprawling black markets of Mumbai, the country's biggest commercial center. 

     Legions of vendors spend their days selling counterfeit Samsung Electronics and Taiwan's HTC phones. Cheaper look-alikes can also be bought with little fuss. Hordes of eager shoppers bustle through the warren of cramped shops, haggling over prices.

     Sales clerks ask shoppers whether they want the real thing or counterfeits. In the back of stores, clones of smartphones from leading manufacturers such as Apple, Samsung and HTC fill the shelves. Shoppers walk away with fakes that cost less than half of the price of the the real things.  Some phones go for as little as 3,000 rupees ($48.10).

     Throngs of underground companies in China churn out shanzhai cellphones at very low costs. The Chinese word shanzhai originally means mountain stronghold of bandits. The term is often used today to mean "outside of government supervision" or "evading tax or copyright laws" and, by extension, "knockoff" or "imitation."

     Shanzhai cellphones, called "China mobile" in India, have captured massive market share in the country as many consumers prioritize getting a bargain over service guarantees. Chinese manufacturers have a competitive advantage because they evade tax, regulatory fees and safety checks at home.

     A 30-something living in Mumbai said he knew fake mobile phones tended to break easily. But that did not matter to him. A genuine smartphone was out of his price range, he said.

Trade imbalance

India's once vibrant economy is losing steam. Growth rates are significantly slowing. The country's market for smartphones, however, is expanding at a breakneck pace.

     Low-priced products launched by Indian makers such as Micromax have made smartphones affordable for more of the population.  Many of cut-cost offerings from Indian markers are made in China.

     The Indian smartphone market is awash with products manufactured in China, because the same factories produce the Samsungs and the Shamsungs.

     Chinese products are also making deep inroads into the Indian market for electrical appliances. Indian companies typically import nonbrand products from China and sell them in India at extremely low prices, a senior executive at a Japanese appliance maker said.

     India's smartphone market is a microcosm of what is going on at a macro level. The country runs a chronic and growing trade deficit with China. 

     In the fiscal year through March 2013, India exported some $13.5 billion worth of goods to China and imported $52.2 billion's worth. The government in New Delhi wants to narrow the trade gap.

     Consumers in India benefit from the bargains, but the trade imbalance is a source of economic tension between the countries.

     Numerous industries are beginning to get disgruntled. In Gujarat's ceramic industry, which mainly makes tiles and sanitary ware, local small and midsize players face the abyss. Low-priced ceramic imports from China are growing at dizzy annual rates of around 40%, posing a serious threat to local makers, which are also facing rising costs of fuel and materials. The bottom lines for Indian ceramic makers are sinking rapidly.

     Should that matter to consumers? Probably. Sometimes you get more than you bargained for when you spend on Made in China.

 

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