China loves its knockoff cell phones

The phone's sleek lines and touch-screen are unmistakably familiar. So is the logo on the back. But a sales clerk at a sprawling electronic goods market in this Chinese coastal city of Shenzhen admits what is clear upon closer inspection: this is not the Apple iPhone, this is the Hi-Phone.

“But it's just as good,” the clerk says. Nearby, dozens of other vendors are selling counterfeit Nokia, Motorola and Samsung phones — as well as cheap look-alikes that make no bones about being knockoffs.

“Five years ago, there were no counterfeit phones,” said Xiong Ting, a sales manager at Triquint Semiconductor, a maker of mobile phone components, while visiting Shenzhen. “You needed a design house. You needed software guys. You needed hardware design. But now, a company with five guys can do it. Within 100 miles from Shenzhen, you can find all your suppliers.”

Technological advances have allowed hundreds of small Chinese companies, some with as few as 10 employees, to churn out what are known here as shanzhai, or black market, cell phones, often for as little as $20 apiece.

And just as Chinese companies are trying to move up the value chain of manufacturing, from producing toys and garments to making computers and electric cars, so too are counterfeiters. After years of making fake luxury bags and cheap DVDs, they are capturing market share from the world's biggest mobile phone makers.

Although shanzhai phones have only been around for a few years now, they already account for more than 20 per cent of sales in China, which is the world's biggest mobile phone market, according to research firm Gartner Inc.

They are also being illegally exported to Russia, India, the Middle East, Europe and even the United States. “The shanzhai phone market is expanding crazily,” said Wang Jiping, a senior analyst at IDC, a firm that tracks technology trends. “They copy Apple, Nokia, whatever they like, and they respond to the market swiftly.”

Alarmed by the rapid growth of counterfeits and no-name knockoffs, global brands are pressing the Chinese government to crack down on their proliferation, and are warning consumers about potential health hazards such as cheap batteries that can explode.

Nokia, the world's biggest cell phone maker, says it is working with Beijing to fight counterfeiting. Motorola says much the same. Apple Inc declined to comment.

Even Chinese mobile phone producers are losing market share to underground companies, which have a built-in cost advantage because they evade taxes, regulatory fees and safety checks.

“We’re being severely hurt by shanzhai phones,” said Chen Zhao, a sales director at Konka, a Chinese cell phone maker. “Legal cell phone makers should pay 17 per cent of their revenue as value-added tax, but shanzhai makers, of course, won't pay it.”

So far, however, China has done little to stop the proliferation of fake mobile phones, which are even advertised on late-night television infomercials with pitches like “one-fifth the price, but the same function and look,” or patriotic appeals like “Buy shanzhai to show your love of our country”.

Last month, the Ministry of Industry and Information Technology did warn consumers against the hazards of shanzhai phones, saying “their radiation usually exceeds the limit”. China's consumer protection agency said faulty mobile phones were the No. 1 consumer complaint last year.

A few weeks ago, a 45-year-old man in south China was severely burned after his cell phone exploded in his shirt pocket, according to the state-run news media.

But that hasn't seemed to affect sales of black market phones, which typically sell at retail for $100 to $150. In the spirit of shanzhai — which suggests rebels or bandits and which applies to counterfeit products of all kinds — many consumers are willing to take a risk on a cheap item that looks stylish.

“I saw iPhone pictures on the web, it's so cool. But it costs over $500 — too expensive,” said Yang Guibin, 30, an office worker from Chongqing. “So I decided to buy a shanzhai iPhone. I bought it from a digital market here, it looked exactly like the iPhone.”

Some experts say they believe the shanzhai phenomena is about being creative, Chinese style.