Threat to Mobile Phone Exports to China

The red light is blinking on exports of Korean mobile handsets to China.

Due to the rapid growth of Chinese phone makers and accumulated inventories of Korean corporations, Korean companies feel the uncertainty of their positions on the Chinese market.

Accordingly to the Ministry of Commerce, Industry and Energy and the Korea International Trade Association (KITA), the exponential growth of mobile handset exports to China stopped and exports clearly took a negative turn this year. Since mobile phones are the major export item taking up almost half of IT sector exports along with semi-conductors, this clearly shows a warning sign to Korea’s export-dependent economy.

Warning signs

Korea’s exports of mobiles handsets to China declined starting last December, with exports in January and February reaching 151 million dollars and 116 million dollars respectively, far less than the 257 million dollars recorded last December.

This was a 972% and 327% increase compared to the same period last year, but still was a serious warning sign given the fact that exports had grown continuously month by month.

Aggravating market conditions

Korean companies’ market share is decreasing as Chinese companies including TCL and Ningbo Bird are beginning to mass produce low-priced mobile handsets. The average handset price has dropped by 22% due to oversupply. “One of the reasons for deteriorating profits is excessive competition among Korean handset makers to secure exports,” Song Mun-seop, CEO of Pantech & Curitel said.

“The production capacity of mobile handsets in China has reached 250 million units, but Chinese people are expected to buy only 80 million mobile phones,” Kim Chang-hyeon, senior researcher at LG Economic Research Institute said.

Chinese handset makers have drastically grown over the past few years, posing a serious threat to Korean companies. Chinese companies have taken up as much as 40% of the Chinese market. With all-out support from the Chinese government, Chinese mobile handset makers are expanding their sales to ensure high margins for distributors. Accordingly, Korean medium-sized manufacturers which focus on low-priced mobile handsets are likely to be hurt.

“Korean companies should maintain their technologically competitive edge with continued R&D as well as expand their markets to Europe and Latin America,” Kim added.

Tae-Han Kim Jong sik Kong freewill@donga.com kong@donga.com