Significantly impacted by the effects of the pandemic in early 2020, smartphone sales in China experienced a notable slump due to the initial lockdown and delayed purchases due to lower consumer confidence and economic uncertainty. Heading into 2021 with resumed economic activity and an increasing vaccination rate, local consumers have grown accustomed to the “new normal” and are returning to making purchases of various electronics including smartphones, resulting in a healthier performance, although volume sales are set to remain lower compared to 2019 levels.
The US-China trade war has had a profound impact on the smartphone competitive landscape in China, which has seen former leader Huawei become the target for sanctions. The US tightening restrictions in May 2020 regarding Huawei’s ability to use US technology for semiconductors was a de facto death sentence to the company’s supply chain, as US technology and software are essential to the design and manufacturing of advanced chips for high-end smartphones that Huawei has traditionally dominated.
As China’s smartphone competitive landscape is highly concentrated, manufacturers are adopting multi-brand strategies in order to gain consumers from different segments and satisfy diversified demands. The previous success of Huawei Technologies’ Huawei versus Honor, as well as Xiaomi Inc’s Xiaomi versus Redmi are notable examples of differentiated growth between the premium and mass segments.
As the threat of the pandemic wanes, and consumers regain their purchasing confidence, the penetration rate of smartphones in China is predicted to further increase in 2022, although overall the category is predicted to record a fairly flat performance over the forecast period as it reaches saturation. Replacement purchases, mostly driven by manufacturers’ efforts to develop more innovative products, will continue to be the main growth driver, which will include higher 5G model adoption in addition to new products that feature state-of-the-art technology such as foldable screens, a higher number of cameras, and faster display refresh rate.
Huawei was the best-selling premium smartphone brand in China before 2021. With signs of Huawei’s decline evident in late 2020, other local smartphone manufacturers, including Xiaomi, Guangdong OPPO Mobile Telecommunications Corp Ltd, and Vivo Communication Technology, have all been rapidly moving towards the premium segment with the aim of becoming the next leading premium brand, either by launching flagship models that aim to benchmark Huawei’s configurations and pricing, or by re-branding.
E-commerce has been an important distribution channel for sales of consumer electronics during the pandemic, but store-based specialist retailers will remain relevant and a key touch point for consumers to gain greater knowledge of different products and brands, especially in lower tier cities, while digital penetration has its own limitations. Manufacturers including Guangdong, Vivo, and Xiaomi are likely to continue to place importance on the offline channel as a way of diversifying electronics sales beyond smartphones.
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