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Chinese Government to Crack Down on Subsidies; Hurting the Likes of HTC, Samsung and Others

August 20, 2014 - Written By Tom Dawson

 

In China, one of the most important markets for smartphone manufacturers like HTC and Samsung, the government is about to crack down on an important business model; subsidies. In China, the big three carriers – China Mobile, China Unicom and China Telecom – all over substantial subsidies on smartphones, helping those who wouldn’t otherwise be able to afford a high-end device get their hands on one. As this is China, these three networks are all owned by the State and the Government is to have them cut their combined spending on subsidies by 40 Billion Yuan ($6.5 Billion) over the next three years.

The story is coming from Focus Taiwan and if it turns out to be true, it could have serious implications for the likes of the HTC, Samsung and perhaps even Chinese stalwarts Huawei and ZTE. What happens in China stays in China, right? Well, in this case, no. As China has become easily one of the most important – if not the most important – markets for OEMs to grab and keep hold of. It’s explosive growth in mobile hasn’t been seen elsewhere and if you can’t make it in China, you might struggle to make it anywhere else. Interestingly though, Chinese giant Xiaomi is more than likely going to better off if such a policy takes place.

Xiaomi makes their money by selling their devices (very cheaply) directly to customers online and subsidies probably don’t matter much to a company that sells their devices just fine on their own. HTC, Samsung and co however rely on the networks to help sell their hardware to the Chinese public. Perhaps China has been looking at South Korea, where subsidies have grown out of control, with the government unable to regulate wild practices just to get more subscribers to jump ship. No matter what though, China’s stance on these subsidies will have an impact on the rest of the world, maybe not this year, or even next year but at some point the rest of the world will take notice.