China cracks down on gray-market cell phones

Beijing has finally moved to curtail China’s infamous “gray” cell phone market.

According to iSuppli, the government-enforced crackdown is causing domestic gray-market phone shipments to decline, while simultaneously boosting the output of major global OEMs.

“Recent developments indicate [Beijing] is beginning to take seriously the long-festering problem of smuggled handsets and counterfeit handsets, a thorny issue that not only undercuts the tax revenue but also tarnishes China’s image abroad,” senior iSuppli analyst Kevin Wang told TG Daily. 

“As a result, iSuppli believes that the gray handset market will be greatly affected by the government investigation.”

Wang explained that gray-market phones manufactured in China use fake International Mobile Equipment Identity (IMEI) numbers and do not carry test/quality certifications or network entry permits. 

“The manufacturers of these products profit illegally by generally not paying value-added taxes. Although local governments have tried for years to defeat the sale and manufacturing of counterfeit cell phone and smuggling, such a large investigation by the Chinese government caught many by surprise,” he said.  

“Given that thousands of handset system integrators purchase handset solutions from Chinese design houses and sell the products both in China and around the world, it is possible that the effects of the investigation could carry over and be felt globally.”