China leads Global IoT market as Smartphone connections rise

The GSMA has reported that China is leading the world in terms of M2M connections, while smartphones are set to become the dominant devices in the market.

With 74 million M2M connections, China has become the global leader in deployment of the Internet of Things (IoT). The GSMA’s report includes insights from the country’s major mobile operators China Mobile, China Telecom and China Unicom, and cites the combination of a strong economy, far-sighted government investment and international cross-sector partnerships as key factors in enabling the IoT to quickly reach scale.

“Clearly, China’s size offers economies of scale unavailable to other countries, but it’s been the government’s focused strategy, emphasis on common specifications and cross-sector collaboration that has allowed the Internet of Things to scale, delivering positive benefits to businesses and consumer alike,” commented Alex Sinclair, Chief Technology Officer, GSMA.

“Connectivity is boosting major industries such as logistics, manufacturing and energy in terms of increased efficiency, but it has also created a new consumer market in areas such as connected vehicles, home appliances and wearables, putting China at the forefront of IoT deployment.”

Backed by government support, sectors such as transportation, energy, logistics, utilities and manufacturing have all benefited from the real-time information provided by mobile connectivity to increase efficiency, lower costs and manage infrastructure. However, the consumer market has also experienced incredible growth, with millions of Chinese consumers now owning multiple connected devices and experiencing the IoT in their daily lives.

China has benefited from proactive government support in the development of the IoT, with funding allocated as part of the country’s 12th Five-Year Development Plans and additional funding made available for research and development. China has also led in the development of standards, establishing an IoT standards association and promoting Chinese-developed standards internationally.

Meanwhile, a study published by GSMA Intelligence - the research arm of the GSMA – has found that smartphones are on track to account for two-thirds of mobile connections in China by the end of this year. Smartphone adoption in the country (as a percentage of connections) had reached 62% by the end of Q1 2015, above the average level in Europe (55%).

The rapid adoption of smartphones across urban areas in China has been fuelled by the increasing popularity of both international device brands and devices produced by a growing number of domestic smartphone vendors. 4G models are now the primary driver of smartphone sales, which is accelerating China’s migration from 3G to 4G networks.

“Almost half of the Chinese population now account for China’s 1.3 billion mobile connections and 62% of these connections are smartphones,” said Hyunmi Yang, Chief Strategy Officer at the GSMA. “Our study reveals a vibrant domestic device market that has established the smartphone as a lifestyle hub and digital platform for millions of Chinese citizens – with large-scale investments in 4G networks by Chinese mobile operators triggering a new era of growth.”

According to GSMA Intelligence, there were 632 million unique mobile subscribers in China in Q1 2015, accounting for 48% of the population. Smartphones accounted for 805 million (62%) of China’s 1.3 billion mobile connections in Q1 2015, a figure predicted to reach 913 million (68%) by the end of the year. However, growth in smartphone connections has slowed in recent quarters as the market matures, suggesting that the majority of current smartphone sales are now being driven by replacements rather than new connections.

3G connections in the country have begun to decline as 3G smartphones are replaced with 4G models. The study predicts there will not be any new non-4G models released by Chinese smartphone vendors after 2016, with many having taken this step already. It is forecast that 4G connections in China will reach one billion by 2020, representing about two-thirds of the market by this point, up from 100 million (8%) at the end of 2014. Local mobile operators are also driving the move to 4G by subsidising the cost of an increasingly wide range of 4G devices via their retail channels.

According to the study, the average price of a smartphone in China is CNY1,100 (US$175). The average price of a smartphone from a domestic Chinese vendor is CNY935 (US$150), almost half the price of a smartphone from an international brand at CNY1,765 (US$285). However, the study finds that major Chinese vendors such as Xiaomi and Huawei are increasingly releasing new models that target mid-to high-end market segments.

Chinese vendors are also producing a greater proportion of 4G smartphones than their international rivals. In Q1 2015, 70% of new handset models released by Chinese vendors supported 4G, compared to the global average of 40%. The average price difference between a Chinese-manufactured 4G smartphone and its 3G equivalent is CNY375 (US$60).

“Chinese smartphone vendors such as Xiaomi, Huawei and Lenovo are benefiting from a rich local smartphone manufacturing and design ecosystem, which is allowing them to compete effectively with foreign smartphone brands such as Apple and Samsung,” added Hyunmi Yang. “There remains a large market for producing budget smartphones that enable people to connect to the mobile internet for the first time, while the increasing number of affluent customers in China is also fuelling a growing luxury smartphone market.”

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