The Chinese mobile phone market has entered the maturity phase since 2014. Despite increasing sales volume of smartphones, the market's year-on-year increase rate has been falling rapidly, according to a report released by MIC (Market Intelligence & Consulting Institute), a Taipei-based ICT research institute. As the market is near saturation, there are some radical changes for telecom operators and major channel distributors of Chinese smartphones.

According to a notification from China's Ministry of Finance and State Administration of Taxation, three major Chinese telecom operators would have to pay the so-called telecommunications VAT (Value-Added Taxes) starting from June 1, 2014. Paying VAT is to narrow the profit margins of three major telecom operators by 30%. To offset the revenue losses, those operators would reduce their subsidies for consumers buying smartphones. This is evidenced by the fact that China Telecom's subsidies for smartphones were reduced to around 11.59 billion RMB (US$1.87 billion; US$1 = 6.2RMB) in the first half of 2014, down 17.7% year-on-year. The VAT effect on operators' subsidies is expected to continue into 2015 with estimated subsidies of 16 billion RMB (US$2.58 billion) for 2015.

Subsidies Provided by China's Top-3 Operators, 2013 – 2015

Source: Respective operators, compiled by MIC, June 2015

"Overall, due to the detrimental factors like reduced profits as a result of policy changes, the subsidies of three major operators have begun to slide since 2014," says Jade Yu-Ju Chang, industry analyst with MIC. "Furthermore, smartphone vendors' profits from telecom operators are likely to be lower in 2015. Seeking new breakthrough innovations is therefore essential for those who need new impact points."

To see more about this report, please visit: Smartphone Product Strategy Benchmarking: Lenovo, Huawei, Coolpad

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About MIC

Market Intelligence & Consulting Institute (MIC), based in Taipei, Taiwan, was founded in 1987. MIC is Taiwan's premier IT industry research and consulting firm providing intelligence, in-depth analysis, and strategic consulting services on global IT product and technology trends, focusing on markets and industries in Asia-Pacific. MIC is part of the Institute for Information Industry. https://mic.iii.org.tw/english