Just a couple of months ago, the Chinese government pressured the three state owned wireless carriers, China Mobile Ltd, China Unicom Ltd, and China Telecom Corp, to reduce the amount that they spend on promotional handset subsidies. Collectively the three carriers have planned to cut about 40 billion Chinese yuan (US$6.5 billion) from budgets over the next three years. This comes as authorities have accused the carriers of allegedly overspending on subsidies and advertising.
China Mobile Ltd is the largest of the big three. The carrier will bring handset subsidies down well within the three year time table. The company told investors that it would lower its subsidy budget from 15.6 billion yuan in the first quarter of this year, to 6 billion yuan in the second quarter, a cut of over 60 percent.
The policy change will impact local smartphone manufacturers such as ZTE and Huawei. However, the ones who will feel the pinch the most are the foreign manufacturers. The foreign vendors have already been struggling with the market share the Chinese OEMs have been grabbing with their budget smartphones. With this cut of subsidies, he big players are now facing shrinking profits to make up for the lack of subsidies, or risk losing sales to cheaper vendors.
It looks however, Xiaomi will be the only company to benefit from the new policy. The company just overtook South Korean tech tycoon, Samsung as China’s largest manufacturer. The company does most of its business via online retail rather than through China’s public carriers like most of its competitors. This means that its prices will remain unaffected by the subsidy cut.
Also, Xiaomi profits most via its software services rather than hardware sales. This puts less pressure on profit generated from repeat hardware sales. With the budget cuts fully implemented, Xiaomi could secure its place at the top of the Chinese market.
Source: Android Authority