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China’s 4G smartphone market is about to explode

Tuesday, 28 Jan 2014 | 10:48 AM ET
China 4G market to grow 1,500% this year: Report
Tuesday, 28 Jan 2014 | 7:30 PM ET
China's 4G smartphone market is set to grow 1,500 percent this year, according to a new report. CNBC's Julia Wood reports.

China's domestic 4G smartphone market is set for an explosive 1,500 percent growth in shipments this year, according to a new report by IHS Technology.

Shipments of 4G smartphones within China are forecast to reach 72.4 million units in 2014, from just 4.6 million last year, with the market expected to take off in the second half of the year.

4G mobile services, which are around five times faster than 3G, were first made available in China in 2012 on a trial basis. State-owned China Mobile, China Telecom and China Unicom were granted 4G licences in November 2013.

The growth in 4G take-up in China is set to continue, according to IHS. Shipments are expected to double next year to 144.1 million units, jump another 53 percent to 219.8 million in 2016 and end 2017 at 298.5 million units.

Wang Zhao | AFP | Getty Images

The forecast comes after China Mobile signed a deal with Apple which CEO Tim Cook told CNBC was a "watershed moment" for the company. iPhones went on sale in China earlier this month, and IHS expects Apple to sell more than 20 million of the handsets in the country this year.

"With support from the government and increasing clamour from the public, 4G smartphones will be the new hot market in China," Kevin Wang, director for China research at IHS, said in a press release.

"Already Beijing has granted licenses for TD-LTE, China's homegrown version of the 4G Long Term Evolution standard, to the state's three carriers. This way, China Mobile, China Telecom and China Unicom can all launch commercial 4G services whenever they wish."

(Read more: Apple-China Mobile deal a 'watershed' moment: Tim Cook)

Apple makes China debut
Apple is launching the iPhone 5S and cheaper 5C in China today. "We have long waited for this day to come," says Apple CEO Tim Cook. CNBC's Eunice Yoon reports.

But despite the expected 4G smartphone boom, they will only account for 19 percent of the entire China smartphone market this year, according to IHS. 3G handsets will still make up the majority of the market, and 2G models are also still available.

IHS predicts that 3G shipments will continue to dominate the China smartphone market for two more years, when 4G handsets will take over.

The report said domestic manufacturers are expected be the big winners of the smartphone boom, with Huawei Technologies, Lenovo and ZTE most likely to benefit. Samsung's Note 3 and the iPhone 5 are also likely to be big hits.

(Read more: China's Xiaomi 'new disruptive force' in smartphone market)

In China – like in the U.S. - the cost of a smartphone is heavily subsidized by carriers to encourage customers to sign up for long-term contracts.

Last year, the state's three operators spent a total of 27 billion renminbi (almost $4.5 billion) in subsidies for 3G smartphones - up 10 percent from 2012, which hurt net income for the companies, IHS said.

But the pick-up in smartphone shipments is likely to help shrink the so-called "grey market" for China-made handsets - where high-end smartphones are sold through unauthorized traders. The market, considered illegal by the Chinese authorities, will decline from 200.3 million units in 2013 to 183 million units this year, according to IHS.

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