As 2025 unfolds, China's smartphone market faces a wave of price cuts, with Apple launching promotions and Huawei following suit by adjusting its pricing. While manufacturers compete for market share through innovation in a contracting market, the increasing similarity of smartphone models and features has made differentiation challenging.
Weakened consumer spending in China has suppressed demand for smartphone upgrades, resulting in higher inventory levels and fueling a price war. At the same time, the reliance on "incremental" innovations has left manufacturers struggling to highlight distinctive features.
To drive sales, Apple and Huawei are ramping up efforts, while the Chinese government has introduced a national subsidy program offering consumers financial incentives to purchase new smartphones.
Strategic move signals AI push in Chinese market
Soaring component costs over the past year have driven up smartphone prices, with devices exceeding CNY4,000 (US$546) becoming commonplace. To counter cautious consumer spending and rising costs, manufacturers are increasingly pivoting to AI—a pivotal shift no company can afford to ignore.
On January 10, Apple announced the creation of a new subsidiary in China, with Tejas Kirit Gala serving as its legal representative. The move is likely tied to Apple's plans to introduce Apple Intelligence to the Chinese market.
Yicai Global, citing Chinese business registration data, reports that Apple Technology Development (Shanghai) was established in early 2025 with a registered capital of US$35 million. The subsidiary's business scope includes software development, big data services, data processing, and storage solutions.
Data localization key to Chinese market entry
Apple's China division has not disclosed details about the operational plans for its new Shanghai subsidiary, nor clarified whether a large data center is in the works. Notably, while Apple has previously established data centers elsewhere in China, this marks its first such venture in Shanghai.
Apple's establishment of a Shanghai subsidiary comes at a pivotal moment as the company aims to introduce AI services to the Chinese iPhone market. However, the rollout hinges on regulatory approvals, leaving the feasibility of Apple Intelligence in China uncertain.
Industry experts suggest that data localization is a critical requirement for Apple to launch Apple Intelligence in China. The establishment of the Shanghai subsidiary underscores Apple's effort to align with local data processing regulations.
Chinese tech partnerships crucial for market success
Canalys forecasts suggest Apple is preparing to introduce its own Large Language Model (LLM) beyond ChatGPT, making it one of the leading Western AI LLM contenders likely to secure regulatory approval in China.
Public records reveal that in September 2017, Apple established Apple Technology Service (Guizhou) Co., Ltd., investing US$1 billion to build a data center in Guizhou. Notably, Tejas Kirit Gala stepped down from the company in December 2024.
Apple is reportedly in talks with Chinese tech giants Tencent and ByteDance to integrate its LLM into iPhone systems tailored for Chinese users. Rumors also suggest Baidu might emerge as another potential collaborator.
Market dynamics favor early movers
Industry experts warn that Apple's delay in launching Apple Intelligence in China weakens its competitive position, as local smartphone makers accelerate the integration of AI features and develop terminal and cloud-based LLMs. Governmental restrictions further complicate Apple's efforts.
Canalys data reveals a 591% year-over-year surge in AI smartphone shipments in China during the third quarter of 2024, underscoring vast market potential. The report highlights Chinese smartphone makers' advancements in AI model optimization, leveraging quantization and pruning techniques to enhance quality while reducing parameter complexity.
Source: Canalys, compiled by DIGITIMES, January 2025
Xiaomi CEO Jun Lei is ramping up AI investments as Xiaomi Automobile gains traction in the market. By late 2024, Lei reportedly recruited Fuli Luo, a renowned developer of DeepSeek-V2, to strengthen Xiaomi's AI large model team.
In the AI era, the high training costs of LLMs and advanced AI inference chips have raised entry barriers for smartphone makers. OEM/ODM-based manufacturers struggle to sustain profitability, while Apple faces intensifying competition in its bid to penetrate the Chinese AI market.