The Future of Chinese Consumer Electronics in the Global Market

Chinese technology firms have seen great success in the global market recently, with its top two smartphone companies, Huawei and Xiaomi,  shipping almost 100 million handsets worldwide in Q3 2020. However, China’s biggest telecommunication, Huawei, company is facing widespread sanctions globally. Therefore, the future of Chinese technology in the global market may be under threat.

 

In response to the sanctions against its leading companies and growing global tensions, China has developed a ‘dual-circulation’ strategy, in pursuit of both economic self-reliance and greater economic leverage over foreign countries. By simultaneously creating self-developed, controllable supply chains, and strategically opening its markets to foreign firms, the Chinese government seems to be attempting to induce a higher international dependence on Chinese market. Trivium China’s Andrew Polk, an economic and policy analyst, observed that essentially ‘where linkages with the global economy create vulnerabilities, China wants to minimise them’ whilst ‘where the linkages create benefits, China wants to expand them.’ This could deter foreign powers from putting pressure on China with yet more sanctions, with the risk of an inward facing China. For example, one of the government’s goals in its 2021-25 five-year plan is to lower computer chip imports. China currently produces 30% of the chips it consumes, up 10% in comparison to 10 years ago, with the goal of reaching 70% by 2025, showing its growing independence in this market.

 

However, by lowering importation of foreign technology the government will actively decrease competition in China, potentially reducing their technology firms’ motivation and ability to innovate. Consequently, Chinese firms may struggle to compete in the global market. The process of reducing imports and creating telecommunication independence has been accelerated after Huawei was cut off from mobile chip exports from the US in May, and then from any chip manufacturers with American technology in the world, as of September 2020. Although the telecommunications giant is aiming to make a ‘not-made-in-America’ supply chain by 2022, with lack of access to mobile chips, Huawei would only be able to produce chips with transistors 28 nanometres apart. This is far less dense than the most advanced chips offered in today’s mobile market, which could see Huawei struggle to compete globally.

 

This suggests China may look to other companies to fill the telecommunication void in the international market. Xiaomi, another large Chinese telecommunication company, is a potential forerunner. The tech company’s share price has doubled since June, with its value standing at 80 billion USD as of 5th November. With US sanctions depressing Huawei’s sales, attention is fast turning to Xiaomi, which is benefitting from continued supply chip makers such as Taiwan Semiconductor Manufacturing Company (who they are prohibited from selling to Huawei). Although Xiaomi only shipped 47 million smartphones worldwide in comparison to Huawei’s 52 million units in Q3 2020, sales were up by 45% year on year, whereas Huawei’s sales have decreased 23% over the same period. This shift seems to suggest that consumers regard Xiaomi handsets as suitable replacements for Huawei’s products, and could see Xiaomi become the world’s second biggest smartphone vendor, behind only Samsung. Furthermore, Xiaomi seems better prepared for an increasingly paranoid global environment, as it only runs consumer operations, which is less likely to aggravate foreign countries and markets than Huawei’s telecommunication services.

 

However, Xiaomi must find a way to sustain its rise. Primarily, it must continue to build on its success as a diversified company, selling flagship ‘Mi’ phones for those in search of a premium product, as well ‘Redmi’ phones for those looking to find a cheaper alternative. This strategy has seen proven results in both developed and developing countries, making the tech company the leading supplier in both India and Spain, a market that Apple struggles to appeal to with its exclusively premium products. Furthermore, Xiaomi must anticipate the revival of Huawei, if its sanctions are lifted, or if Huawei manages to develop their ‘not-made-in-America’ supply chain for mobile chips. One potential solution would be to focus on building an ecosystem, in a similar way to Apple, whereby a diverse array of essential tech products rely on each other to perform at their best, which would keep customers coming back for more. Whilst smartphones account for 60% of Xiaomi’s revenue, the company also sells a range of smart devices from light bulbs to electric scooters. These other product areas offer further potential for growth.

 

To conclude, despite the sanctions that Huawei is facing, China can take comfort in the fact that Xiaomi offers a ready and competitive alternative as a consumer electronic supplier in the global market. Furthermore, this competition for Huawei will no doubt drive standards of innovation, making the lower import of foreign technology a minimal concern.

 

By Sam Hughes-Penny

Sector Head: Morgan Sword

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