Future of Shanzhai

In the past decade the Chinese manufacturing system has grown from making components to making complex goods that compete with multinationals in lower-end consumer markets around the world.  What are the major forces shaping the evolution of the next decade of shanzhai?

Increased enforcement of IPR

China’s entry into the World Trade Organization in 2001 coincided with the growth of the shanzhai and their IP-flaunting processes. Shanzhai have begun to take real bites out of the market share of multinational corporations like Nokia and will impact tablet and PC makers as well in the next few years. The higher the stakes, the higher the pressure on the Chinese government to enforce international intellectual property rights.  In January 2011 two Chinese agencies—the Ministry of Industry and Information Technology, and the State Administration of Industry and Commerce—declared a crackdown on shanzhai electronics manufacturers.

Increased R&D spending

Research by Dr. Yu Zhou of Vassar College shows that Chinese firms have significantly increased their R&D spending in past two years. With their growing global success, Chinese shanzhai are catering more to a global market. David Li of Xinchejian notes that many of the shanzhai phones now sold in China come pre-installed with Twitter and Facebook apps.  While both of these services are blocked in China, the phones are targeting users in other countries.

Move from shanzhai to legitimate business

In many cases, Shanzhai factories aim to become legitimate businesses and develop their own brands.  The Chinese government seems to be allowing some bootleg businesses to grow, hoping they will follow this path.  As Xinhua News reports, Chinese hybrid vehicle and battery manufacturer BYD, in which Warren Buffet has a 10% stake, began as a shanzhai plant producing cheap batteries.

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