China's mobile phone market has been under full steam since the technology was first introduced in the nation - seldom, if ever, has growth in subscriber numbers slowed.

 

That burst in demand is reflected by the nearly 80 manufacturers that are able to survive in the market, a range that would be unbelievable anywhere else in the world.

 

Yet the full potential has yet to be tapped. Abolition by the government of its manufacturing approval system this month could help push sales of mobile phones by another 20 percent.

 

The State Council announced on October 12 that it will eliminate the long-held handset approval system, which previously required a license from regulators for manufacturing and selling handsets in the country.

 

Discarding the approval system could open the floodgates for newcomers that have been working hard to move into the lucrative sector.

 

The old approval system was quite lengthy. It took Hewlett-Packard two years to acquire the needed license to sell some of its PDA (personal digital assistant) models that have mobile phone functions, for instance.

 

"Beside normal organic annual growth, there will be an additional 20 million mobile handsets flooding the Chinese market next year, spurred solely by the deregulation of China's mobile phone production approval system," says Shen Zixin, an analyst from Pday Research, a Beijing-based research firm.

 

Near 100 million handsets were sold in China last year and about 10 percent growth is projected for this year. With the approval system scrapped, growth could reach nearly 30 percent.

 

Analysts see abolition of the approval process as part of deregulation that will be a positive development for the industry.

 

The licensing system under planned economy has been a focus of controversy and criticism. In 2004 home appliance manufacturer Aux even brought the Ministry of Information Industry (MII) to court after its failure to secure a license to make mobile phones.

Aux said it had applied for the license five times but was rejected. It claimed regulators did not offer convincing reasons for the rejections.

 

Without the now-discarded regulations, any company now can make handsets, though it still has to send any new model to the MII for quality checks before it can be sold on the market.

 

Yet companies that have been relying on "leasing" licenses to make money could take a hit.

 

According to research firm GFK China, China's GSM mobile phone market sales reached 104 million units last year, with foreign giants, such as Nokia, Motorola and Samsung, accounting for 70 percent of the market.

 

Pang Jun, an analyst from GFK China, contends that the number does not include illegal sales of phones produced by unregistered manufactures.

 

The government introduced the licensing scheme in 1991, and after issuing a first group of licenses, seldom handed out new permits, especially to foreign companies, in fear of overheated investment and industry glut.

 

That prompted some unlicensed companies to "borrow" licenses from the licensed. They paid 20 to 40 yuan for each handset they sold under a borrowed license.

 

"Among the 60 licensed mobile phone manufacturers by the end of last year, about half of them have revenues from lending licenses and some of them even solely rely on lending," says Shen Zixin from Pday Research.

 

In 2005 the government revised the approval system under which companies can get licenses if they meet specific requirements.

 

The applicant must have a registered capital of at least 300 million yuan and a history of business operation for at least three years.

 

A complete elimination of the approval system could weigh on many companies that have been making money by leasing licenses.

 

GFK's Pang estimates China's black market for mobile phones reached 30 million to 40 million units last year, or nearly 25 percent of the country's total mobile phone market.

 

He says that after China removes its restriction on mobile phone production "nearly half of the mobile phone manufacturers now in the black market will flood into legal channels and that will result in a consolidation of the industry".

 

"After China finally eases the restriction for mobile phone manufacturers, the market mechanism will take full effect," he says.

 

(China Daily October 22, 2007)