1. Chongqing's cellphone production sharply decreased by 49% in the first half of 2018 due to China's shrinking domestic market and other factors. 2. Smaller Chinese cellphone manufacturers must now rely on exports to markets like India, Africa, and Southeast Asia due to increased competition in China. 3. For Chongqing's cellphone industry to succeed, it must focus on reducing costs through subsidies, supply chain improvements, and automation to compete in export markets where price is critical.

1. Stone Tan Report: Chongqing
Cell Phone Industry August 2018
Table 1：China Phone Shimpments (million units)
Rank Province 2017 YoY
2017
H1
2018
H1
YoY
1 Guangdong 828 -14% 392 386 -1%
2 Henan 297 14% 107 113 6%
3 Chongqing 237 -17% 168 85 -49%
4 Beijing 75 9% 31 43 40%
10 Sichuan 32 -29% 10.8 20 80%
15 Yunnan 6 1143% 1.2 10 698%
Executive Summary:
* China’s Cell Phone market is contracting due to
saturation. This has had a direct impact on
Chongqing’s output as well.
* The market is becoming less fragmented, with top
players taking higher market share.
* The smaller players must rely on exports to less
developed countries. However, the Indian market
is getting more competitive for smaller Chinese
manufacturers, making the focus now on Africa,
Nepal, SE Asia, Bangladesh, and Pakistan.
* Chongqing is competing with Guangdong,
Henan, and other areas that export cheap cell
phones. For Chongqing to be successful, its cell
phone industry must rely on low cost logistics,
cheap material costs, and strong international
sales and marketing support.
* In our last report (2016), Chongqing’s cellphone
manufacturing industry was growing strongly.
Due to a shrinking domestic market (see chart 1)
and other factors, Chongqing has experienced a
sharp decrease in the past year.
From January to June 2018, the domestic mobile phone
market shipped 196 million units, down 17.8% year-on-year.
Table 2: Production of Cellphones by Province
The above figures include both exports and domestic sales.
Guangdong continues to lead the provinces due to having Huawei,
OPPO, Vivo, Gionee and Coolpad. Henan, which produces Apple
phones, had consistent growth. Chongqing strong fall likely has to do
with a fall in exports. Other areas may have taken market
share from Chongqing, including Yunnan and Chengdu.
Key Trend: Although
cellphone shipments had a
decrease in 2017, there
should be small but positive
growth in coming years.
Source: IMH
Table 3：China Smart Phone Demand Forecast (million units）
476
464
470
480
493
14.1%
-2.5%
1.2%
2.2%
2.9%
-5%
0%
5%
10%
15%
400
450
500
2016 2017 2018 2019 2020
SmartPhone Growth
4.78 4.59
2.38
1.96
2017 2018 2017H1 2018H1
China Cellphone Shipments (million Units)

2. Key Reasons for Chongqing’s Drop in Cell Production
Table 5: June 2018 Offline Mobile Sales Market
Share
Recent consolidation in the China cellphone market has made it
increasingly difficult to gain traction in this market (see Chart 4).
Smaller companies in Chongqing must focus on exports as the best way
to develop their businesses. Due to its geographic location, exporting to
India is not as easy as coastal cities. To help jumpstart this, the
Chongqing government issued some subsidies to help with this issue,
including:
1) Support 1: Mobile phone logistics subsidy - locally produced non-
smart phones get 0.10 yuan/set, smartphones 0.30 yuan/set.
2) 2) Support 2: Mobile phone testing fee subsidy - The maximum subsidy
rate does not exceed 20% or maximum 500,000 yuan per year.
A * means the company has qualified for the Chongqing's mobile phone logistics subsidy. Gionee Investment Plans for Chongqing are on
hold due to financial issues within the company. Guangdong Opal Mobile Communications Co., Ltd. invested in the OPPO (Chongqing)
Intelligent Eco-Science Park started construction, It is expected to be put into operation in 2020 and full production in 2021 (30 million
smartphones/year). Oppo has global production bases in Dongguan, Chengdu, Chongqing, India, Jakarta, and Algeria. Vivo has plants in
Dongguan, Chongqing, New Delhi, and Jakarta.
Other includes Chuizi, 360，Haixin, Meitu,
Tangguo, Lenovo, Duowei, Xiao La Jiao,
China Mobile, Kubi, Gionee, Kangjia
About Chongqing’s Cellphone Industry: Chongqing’s Electronic sector is now the strongest economic pillar, oupassing the
automotive sector in 2017. Aside from cellphones, the city also produces laptop computers, tablets, and has a growing
semiconductor industry (see report).* Although its laptop industry features established brands like Acer, HP, and Sony, its cell
phone industry most visibile brand is Vivo. Oppo will begin production in 2020. Other brands made in Chongqing Bailifeng,
Xiaolajiao, Acer (produced by Quanta) and Chuanyi. Our analysis of Chongqing’s mobile phone manufacturing enterprises find
that Chongqing's mobile phone production is based in Nanan District, Yubei District, and Tongnan District. Vivo's factory in
Nanan has received the highest media attention, while Bailifeng’s factory produces more than 20 million mobile phones per
year. Oppo’s factory in Yubei (expected to be completed in 2019) will make this area the largest mobile phone production area
in Chongqing. In addition to these large mobile phone brands, there are many OEM companies that produce and export low-
end mobile phones (to Southeast Asia, India, and Africa) in Chongqing. The annual mobile phone production of these factories
ranges from 1 million to 5 million units.
Table 4: Chongqing Cellphone Production/Parts Map
1.4
1.45
7.7
14.7
20.2
21.7
23.4
9.45
June 2018 Offline Mobile Sales Market Share
Samsung Meizu Xiaomi Apple Vivo Oppo Huawei Other

3. India Phone Market Analysis:
As China's smartphone market has fallen sharply by 20%, India has become the focus of the mobile phone market.
According to public data, India now has a population of about 1.324 billion, which is close to China (1.379 billion). The Pew
Research Center, a third-party market research organization, estimates the penetration rate of smartphones in India is 22%,
less than the third of China. Since the infrastructure has not kept up, smartphones are not yet popular in India. According to
eMarketer's latest forecast, there will be 337 million people using smartphones in India in 2018, which is equivalent to more
than a quarter of the population. India's non-smartphone market is not only bigger than the smartphone market, but also
growing faster. The average price of smartphones in India is 900 yuan, and that of ordinary mobile phones is 150 yuan.
Chongqing's exporters focus on these two markets, but they also face competition. It is estimated that by 2022, 36% of
India's population will have a smartphone. As the Indian government has recently raised its mobile phone import tax, low
cost is becoming more and more important for Chinese mobile phone manufacturers. The Chongqing government has now
focused on reducing costs.
If Chongqing’s mobile phone manufacturers cannot succeed in India, they may have to focus on smaller countries, such as
countries that have joined the “Belt and Road” (Bangladesh, Pakistan, Nepal, Indonesia), Africa, and Latin America. There
are still markets for cheap phones in those areas.
Because price is a key factor in succeeding in areas like
India or other export markets, the government has put a
focus on driving down the costs.
• It plans to renovate 200 assembly inspection lines,
100 packaging lines and 50 SMT production lines.
Through transformation, the number of single-
assembly Seeks to increase the automation rate
from 30% to 90%.
Incentives:
• Increase funding support. For enterprises that use
their own funds for intelligent transformation, they
will be subsidized according to 15% of the
procurement cost of intelligent transformation
equipment. The subsidy funds will be 50% by the
municipal and district levels.
• For enterprises that adopt financial leasing to carry
out intelligent transformation, they shall be
subsidized according to 7% of the purchase of the
leased equipment.
Having access to low cost by quality parts for remaining
competitive in the cellphone market. Key suppliers
coming to Chongqing market include:
1) BOE’s OLED panels are expected to improve and
may get an Apple contract in 2019 and 2020. It is
speculated that the OLED panel line of Chengdu
BOE will be ready to supply to Apple mobile phones
in 2020 as soon as it is fully operational in 2019.
BOE also has a Chongqing plant.
2) Tsinghua Unisplendour’s CQ semiconductor project
is also invested by the Chongqing Municipal
Government and Huaxin Investment. The company's
integrated circuit headquarters and high-end chip
manufacturing base products will include NAND
FLASH (flash) and DRAM (memory) and other
memory chips.
Table 9: Focusing on Cost Reduction Table 10: Key Suppliers to the Industry
140 164
109
124
2016 2017
India's Phone Shipment Breakout
(Million Units)
Non-smart phones Smart Phones
172.8
115.2
2017 Indian mobile phone market (domestic
production vs import) (million units)
Domestically Made Phoes ImportedPhones
Table 8: India - Imports vs DomesticTable 7: India - Phone BreakoutTable 6: How Chongqing Ships
Phones to India?
How Chongqing Ships Phones to India? 1) From Chongqing to Shenzhen by truck, it takes at least 36 to 48 hours. After arriving in
Shenzhen, the company will declare it and then export it to Hong Kong (5 day process). Boarding from Hong Kong, phones go to India in
about three weeks. 2) After the opening of the Chongqing-Kuala Lumpur-India all-cargo route, Chongqing first exports phones to Kuala
Lumpur in just 5 hours and then they are sent to India.

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