Apple is best positioned to benefit as China's premium smartphone market swells

iPhones are a key part of China's premium smartphone market.

In February, analysts said the iPhone helped recover China's smartphone market, with it outpacing local brands in November and December. Now, it seems that Apple could end up benefiting more, as the market is forecast to improve in its favor.

In a report by Counterpoint, China's premium smartphone market, deemed to be smartphones valued at $500 or more at wholesale, increased to more than 26% in 2022.

While the 26% is deemed to be low compared to other developed countries, it is reckoned that the appetite for premium models will grow, increasing the product mix for the market as a whole. Counterpoint's forecast is for the share of smartphones valued at $500 or more will reach 40% by 2035.

China's shipments did fall 16% year-on-year in 2022, reaching less than 280 million units, Counterpoint says, which is the lowest figure in close to a decade. Even so, China's still a massively important market, making up 22.6% of global shipments, higher than India's second-place 12.4% share.

While Counterpoint sees some are questioning the potential of the China smartphone market, the analysts believe the market downturn was made worse due to COVID-19, which affected consumer behavior. As China reduces its pandemic-related curbs and announced a 5% GDP growth target for 2023, Counterpoint reckons that the economy and consumer confidence should recover.

Premium smartphones are still a hefty contributor to China-derived smartphone revenues. While sales revenue fell 11.7% from a peak in 2016 to 2022, shipments dropped 41.5% over the same period, indicating a higher average selling price for devices.

While the 2022 share of premium sales is 26%, the same segment only made up 11% of sales in 2016.

Counterpoint believes that a number of factors will help bring the premium market closer to other regions, including 59.5% of the U.S. and 45.4% of Japan.

First, China's government announced it believes the disposable income of citizens will reach a new high in 2035, at the same time as a growth in the proportion of middle-income groups. Even if China doesn't reach a GDP per capita of $20,000 by 2035, Counterpoint reckons the ASP of smartphones will still grow along with long-term economic growth in the country.

Furthermore, smartphones will still "remain the most important carrier for people's entertainment, consumption, and social interaction," the Counterpoint report reads. With smartphone features also set to improve, such as larger screens, foldable displays, and anticipated performance improvements, it will become a greater focal point in people's lives.