On Wednesday, Samsung announced that it is shutting down the handset manufacturing facility it maintained in Huizhou, China. The firm signaled the shutdown back in June when it slashed production at the plant. Consequently, the world’s largest smartphone maker no longer makes its flagship consumer products in the world’s largest smartphone market.

Despite closing the Huizhou factory, Samsung has confirmed it will still sell its mobile devices in China.

China Doesn’t Like Samsung Phones

Throughout 2019, Samsung has dominated the global handset sector. In the second quarter, the firm counseled its closest rival Huawei by 20 million units. Though its high-end smartphones have underperformed recently, its midrange devices are still a consumer favorite. However, the South Korean conglomerate has seen its market share within the Chinese market collapse in the last half-decade.

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In 2013, Samsung made 15 percent of all mobile devices sold in the People’s Republic. However, in Q1 2019, the firm’s smartphones only represented 1 percent of the Sino market. So, why is the undisputed smartphone market leader having problems selling its products in China? As with most things, the answer is multifaceted.

The main reason is Chinese smartphone users now like to buy domestic. In recent years, local firms like Huawei, Oppo, and Xiaomi have come to dominate the Sino market. Indeed, following the outbreak of the U.S.-China trade war, Huawei has dramatically bolstered its sales by positioning itself as the preferred brand of patriotic citizens.

Huawei’s nationalistic campaign proved so effective, the firm now holds a 38.2 percent share of its home smartphone market.

Samsung’s Chinese sales also fell off a cliff because the company doesn’t have a distinctive brand identity in the region. Cape Investments & Securities analyst Park Sung-soon told Reuters that Sino consumers buy cheap smartphones from local companies and expensive devices from Apple or Huawei.

That said, the plunging sales of its local handsets is the only reason Samsung is pulling smartphone production out of China.

Changing Marketplace

For decades, electronics makers have centered the supply lines in China because of the region’s low production costs. However, in recent years, the area has lost some of its appeal as a manufacturing hub. That shift is primarily due to Beijing’s Made in China 2025 initiative.

Launched in 2015, the program saw the Sino government pumping billions into the country’s industrial sector. Officials intended to transition the Asian superpower from being a font of global outsourcing to a world leader in innovation. In particular, Beijing sought to establish China as a market leader in the fields of artificial intelligence, electric vehicles, and computer chips.

However, over time, the Communist nation’s rivals have come to view Made in China 2025 as an excuse to give local companies carte blanche to steal trade secrets. Indeed, the Trump administration used the $225 million – $600 million American companies lose to Chinese corporate espionage every year as a motivator for the trade war. Moreover, as it’s become more expensive to import Sino-made goods into the U.S., multinational corporations have started reassessing the makeup of their supply chains.

In March, Sony announced plans to shutter its Beijing-located smartphone factory and center its handset production out of its Thailand facility. Similarly, Apple reportedly asked its suppliers to look into relocating 15 to 30 percent of their production capacity out of the Sino mainland.

Also, Samsung opened a smartphone manufacturing factory it bills as the world’s largest in India last year. Furthermore, the company has increased mobile device production output in its eight Vietnamese plants this year.

In the past, China played a crucial role in aiding the global consumer electronics market reach maturity. However, Beijing and the corporations it subsidizes are becoming a competitor to many of the brands it helped established.

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