Are Chinese Consumer Electronics on the Decline Globally?

Just a few weeks ago a prominent question was which Chinese electronics company would dominate the global market in the upcoming year, with Huawei and Xiaomi competing for a leading position on the world stage. However, in the run up to the inauguration of Joe Biden, the Trump administration has added Xiaomi to its blacklist, alongside other alleged Chinese military companies, seeing the smartphone giant’s shares fall by over 10% since its blacklisting on 14th January 2021. Using Xiaomi as a case study, this article will explore the current question of whether Chinese consumer electronics will be still be able to compete in the global market.

 

Having risen to become the third-largest smartphone maker in the third quarter of 2020, Xiaomi’s future is at stake, with US investors forced to sell out of any affected holdings on the US’s blacklist by November 11th. Recently the US, amongst several other Western countries, issued sanctions on Huawei’s 5G telecommunications technology, arguably primarily motivated by paranoia over the possibilities of data surveillance with such foreign technology infiltrating the region. However, as Xiaomi stated, its company solely “provides products [for] commercial use, [and] is not affiliated with the Chinese military”, with its smartphone production forming 60% of its total revenue and the rest being made up of products ranging from smart scales to flashlights.

 

The company will hope that with the recent inauguration of Joe Biden, its fortunes may change. A complete U-turn on delistings is unlikely, but it is expected that a dialogue between the two countries might open up, giving Chinese companies several years to comply with US auditing oversight policies in order to maintain a trading relationship with the country. Having said this, any policy changes are far from predictable, and therefore Chinese electronics companies must look to see if they can enter the global market through other methods.

 

China’s consumer electronics companies may not see rejection in the US as a major threat to revenues. Xiaomi, for example, has a 25.9% share of the Indian smartphone market, with Chinese vendors totalling 76% of the sales in a country which is not to be taken lightly, as its population size is second only to China, with 1 billion more people than the US. Xiaomi can look to dominate here because of its affordable handset selection under its Redmi phone category, not to mention its clever advertising campaigns, which have been popular in India. With India’s Morgan Stanley Capital International (MSCI) Index rising even faster than its fellow emerging markets, such a large and prosperous customer base seems like an ideal area for Chinese companies to grow revenue within the consumer electronic industry.

 

With India as a foundation for consistent sales, consumer electronics companies in China can look to use this as a platform from which to penetrate additional developing markets across the globe. One could see Xiaomi’s recent release of its new flagship smartphone, the Xiaomi 11, at under the 600 GBP price point as a move to outcompete the likes of Samsung and Apple in such regions by offering a competitive product at half the price of its rivals’ top handsets. This would be in line with its ‘Mobile in Africa’ strategy, which aims to “make innovative, cutting edge technology accessible to all”.

 

On top of this, there is still potential for Xiaomi to target more developed Western countries as well; it is just a case of building on existing trade relations, and putting sanctioned areas to one side, as there is plenty of room for expansion, if targeted correctly. Goods trade between the EU and China has grown by eight times over the past 20 years to 626 billion USD, with Germany accounting for 37% of that, helping China outperform America as the EU’s largest trading partner. In addition, China has become Germany’s top supplier, accounting for more than 11% of its imports last year. With a whole electronic “ecosystem to centralise your smart home experience” according to South African distributor of Xiaomi’s products, Mobile in Africa, Xiaomi is currently campaigning to make lockdown a more comfortable experience. The company’s MIUI platform, a version of the Android operating system with added features, has over 210 million connected devices, the biggest ecosystem in the world, and is only set to continue growing by building on its nation’s existing powerful trade relations.

 

Chinese consumer electronics are far from on the decline globally. Although a recent rise in paranoia has seen the US blacklist Chinese companies of any sort of economic threat on a mass scale, if these companies adapt quickly enough to both the political and economic climate, China’s consumer electronic business will find potential for strong returns on investment in select developing nations, as well as in less politically charged regions of the developed world, where their advanced, integrated smart home technology can make working from home all the more bearable.

 

By Samuel Hughes-Penny

Sector Head: Gregor MacDonald

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