Chinese mobile phone grey market will slow in 2011

The grey market for mobile phones in China is expected to slow down in 2011 thanks to a government crackdown according to the latest report from market research firm iSuppli.

Shipments of grey market mobiles will still rise in 2011, up 11.8 percent to 255 million units, but this growth is significantly less than that experienced in 2010, where the figure jumped 43.6 percent to 228 million units.

Grey market growth has been significant over the last five years. In 2005 less than 50 million units shipped, but 2010 saw the largest growth of any recent year.

The grey market is a profitable arena, with manufacturers benefiting from not paying VAT to the Chinese government. The government has launched a crackdown on the industry, attempting to stamp out the unlicensed production and selling of mobile devices. While the market will not be completely closed down, it’s likely to operate at a smaller scale than before.

The Chinese grey market serves a number of countries in the Asia-Pacific region, including China itself, Thailand, Vietnam, Indonesia and the Philippines. Pakistan is also a strong market for the illegal handsets. Shipments within China were down in 2010 from 33.2 million to 24.2 million, but there was substantial growth in other Asian countries, up from from 110.2 million to 154.4 million.

2011 is expected to mark the last year of growth in the grey market, with 2012 seeing a decline to around 200 million units. By 2014 this may drop further to roughly 150 million units.

China’s legal handset market is expected to grow by 36.4 percent in 2010, with further increases predicted for the next five years.