The birth of an iPhone used to go through such a process: designed at Apple's U.S. headquarters, using the main chip provided by U.S. chip manufacturers and key components including the display screen provided by Japan and South Korea, and then supplied by Chinese manufacturers with remaining parts, and finally assembled in the Foxconn factory in Zhengzhou, Henan province, and flown to all parts of the world.

    As Apple's largest manufacturing base in the world, China assembles more than 90 percent of the world's iphones. According to data provided by Counterpoint to First Financial, in 2022, the Chinese market share of Apple's mobile phone production and assembly is 96%, followed by India, accounting for about 4%. But starting last September, more and more consumers found that the iPhone 14 series they bought was printed on the box with the words "Assembled in India." This means that the latest iPhone is being manufactured in India. Apple plans to shift 25 percent of its production to India by 2025.

    Chinese handset makers Xiaomi, OPPO and vivo have all implemented manufacturing in India. At the same time, Samsung can now manufacture all its flagship phones in India, which was not the case two years ago. "Apple and Samsung have grown significantly in the last two years." Shilpi Jain, a senior analyst at Counterpoint, told First Financial reporter that the Indian government is pushing smartphone manufacturers to add local value, including manufacturing localization.

    This trend has upended the mobile phone trade between China and India over the past decade. In 2014, China exported 180 million mobile phones a year to India. But in recent years, with India's increasingly complete industrial ecology in mobile phone manufacturing, it has almost no longer need to import mobile phones from China.

Start of 'Make in India'

    Billions of dollars are pouring into India's manufacturing sector, and large numbers of young Indians are gathering in industrial parks in India's Noida and Haryana states to start working for employers from major global smartphone brands. After the assembly process is completed, the phones are shipped to a number of countries, including the United States, the United Kingdom and other direct sales.

    According to the Ministry of Commerce and Industry, India's electronics exports grew by more than 56 per cent to Rs 572,2024 crore in the April-June period this year compared to Rs 36,53318 crore in the same period last year. Electronic products became the only industry in the top five export categories to grow.

    In the latest official data released, electronics has become the fourth largest export product of India in the second quarter, and the category is the fastest growing among the top thirty export products.

Rajeev Chandrasekhar, India's Minister of State for Electronics and Information Technology, said in March that Indian Prime Minister Narendra Modi has laid out a clear vision that India will play a major role in the global electronics supply chain, and set a target of manufacturing $300 billion in electronics products by 2026.

    Chandrasekhar expects mobile phones to be one of India's top 10 export categories from next year.

In recent years, driven by the Modi government, the share of the consumer electronics industry in India's manufacturing industry has shown an upward trend. With India's vast consumer market as an attractive point, the Modi government has introduced support programs and increased import tariffs on complete machines, trying to create upstream and downstream industries of consumer electronics manufacturing and cultivate local complete industrial chains.

    According to the data released by the Indian Cellular Communications Association, in 2014, India made mobile phones accounted for only 3% of the world, but in the second year of Modi's push to "Make in India", that is, in 2015, the proportion of Indian made mobile phones in the world has reached 11%, and surpassed Vietnam, becoming the second largest mobile phone manufacturer after China. In May 2020, India launched the Production-related Incentive Scheme to support the development of the electronics manufacturing industry (hereinafter referred to as the "PLI Scheme") to stimulate the development of the economy, infrastructure, market demand, and electronics manufacturing industry.

    Shilpi Jain told reporters that "Make in India" policies, such as the PLI programme, have benefited manufacturers such as Apple and Samsung. But from the government's point of view, the program has also boosted job opportunities for top executives in India, and the inclusion of local equity partners has further strengthened the companies' commitment to the Indian market.

    A data provided to reporters by Counterpoint Research shows that in 2020, India made only 1.3 percent of its global production of iphones, rising to 3.1 percent by 2021. In 2022, the production of Apple's iPhone, AirPods, Mac and iPad in China accounted for 96%, 95%, 98% and 98% respectively, and the data of India was 4%, 0%, 1% and 0%, but in this year, The agency expects the share of Made in India in these Apple products to change to 7%, 2%, 3% and 3%.

Judging from the growth trend, this year's "Make in India" orders from Apple will be even higher than analysts expected at the beginning of the year.

    In the data released by the Cellular Communications Association of India, benefiting from the PLI program, India's smartphone exports more than doubled in the first two months of FY2023 (April and May), while smartphone exports amounted to INR 200 billion, much higher than INR 90.66 billion in the same period last year. Among them, smartphone export orders in May reached 120 billion rupees, 50% of which was contributed by Apple.

    Compared to two years ago, India was only able to produce "over-generation" iphones, and now the latest iPhone14 series phones have begun to be shipped from India to the global market. In India's official group of major smartphone exporters, mainly the United States, the United Arab Emirates, the Netherlands, the United Kingdom and Italy, these countries accounted for more than 70% of India's mobile phone exports.

    According to the statistics of the US Department of Commerce, in 2022, the US imports of mobile phones from China fell 2.2% year-on-year to 151 million units, accounting for 79.9% of its import sources, although it has increased from 71.2% in 2019 before the epidemic, but it has fallen 5% from the peak of 84.9% in 2014. In 2022, U.S. imports from Vietnam and India will account for 15.3% and 2.2%, respectively, which is more than 10 times larger than in 2014.

   Ivan Lam, senior analyst at Counterpoint Research, told reporters that in 2022, Apple's mobile phones will mainly be assembled in China and India, with China's market share at 96% and India's at around 4%. By 2023, that number will be 93 percent and 7 percent.

"Export growth depends on local supply in the industrial chain, as well as the controllable rate at which local production can climb." Ivan Lam told reporters.

China's supply chain

    Although India has strong ambitions for local manufacturing, its production is currently largely focused on piecemeal assembly. From the perspective of the development maturity of the overall supply chain, India has no local production capabilities such as components and molds.

Foxconn had planned to shift 30 percent of its production capacity to India in five to 10 years. However, the reality is that 90% of the components of the iPhone still come from China, including the phone holder, industrial glue, screws, mesh, pressure sensitive adhesives and metal parts need to be shipped from China according to Apple's requirements.

    According to the statistics of the China-India-Vietnam Electronics Association CMA, by the end of 2020, the overall number of Chinese-funded mobile phone supply chain factories investing in India will reach 200, trading companies (that is, companies registered in India without factories) will reach 500, and the number of Chinese who support the development of Chinese-funded mobile phone factories will reach 10,000. Every year, the number of Chinese mobile phone companies traveling to India reaches 100,000.

    Wang Gang is part of a mobile phone supply chain that travels back and forth between China and India for years.

After a six-hour flight from Hong Kong International Airport, Wang Gang landed in Delhi Airport, India, and after a short rest, drove one hour east and 20 kilometers to Noida, India's New Okra Industrial development zone. Since 2016, business trips like this one across China and India have become a regular occurrence for mobile phone users like Wang Gang.

    The Report on the Development of Chinese Enterprises in India shows that the investment of Indian Chinese electronic (mobile) enterprises in India is mainly divided into three stages.

    The first stage is 2015-2016, China's mobile phone brands Millet, OPPO, vivo, Transsion four brands have entered India, and in India to obtain a third of the market share. At the same time, MCM, Shanghai Pai, and Germany and other mobile phone assembly factories invested in India. The second stage is 2017-2018, mainly Chinese mobile phone supply chain and accessories supporting service providers to invest in India, battery, charger, data cable manufacturers such as Xinwang Da, APSC, Kobayashi Electronics, Yutong and other enterprises. The third stage is 2018-2019, small and medium-sized enterprises in the mobile phone supply chain are stationed in India, such as module, die cutting, packaging materials, accessories and other enterprises, representative enterprises such as Lianchuang, Tongxingda, Liujia packaging materials and so on.

    These supply chain manufacturers from China are mainly located in Noida, Gurgaon and around Chennai in southern India, and in addition to the mobile phone supply chain investment in India, there are nearly 500 trading companies serving mobile phone companies. Such as equipment suppliers, material suppliers, weak and strong electricity installation companies, purification engineering companies, hotel catering service providers, manpower companies, logistics companies, tax registration services companies, legal consulting services companies.

    Yang Shuicheng, secretary general of the Association of Chinese mobile phone Enterprises in India, said in an interview with the first financial reporter that India's Noida currently has the most mobile phone industry chain manufacturers, and in the past, Xiaomi, Transone's OEM factories and the upstream supply chain around these mobile phone manufacturers have set up factories in India, including many A-share listed companies.

India's mobile phone market space is the core reason for attracting Chinese mobile phone and its supply chain companies to invest in India.

Compared with the rest of the world, India is the only country showing the trend of accelerating the frequency of new mobile phones, and the Chinese market in the 2G to 3G era is quite similar, and the 1.4 billion demographic dividend in any brand mobile phone manufacturers, it is not able to give up the "fat". In addition to market reasons, the Indian market's tariff adjustment for Chinese mobile phone manufacturers is also a key factor forcing manufacturers to build factories.

    Starting in 2016, Modi launched a "phased manufacturing plan", hoping to take advantage of India's huge smartphone market to promote local production. The plan includes tariffs not only on mobile phones, but also on phone chargers, batteries, headphones and components that are already pre-installed with printed circuit boards.

    According to industry sources, starting in December 2017, the Indian government raised the basic tariff on smartphones from 10% to 15%, and in February 2018 it rose to 20%, and in April it imposed a 10% tariff on electronic components including circuit boards and camera modules. Such a policy promotes the local production of mobile phone upstream electronic components and complete machines. By 2020, the average tariff for Indian brands will be 28%, and the average tariff for other parts will be 15%.

    In other words, entering the Indian market in the form of spare parts can obtain lower tariffs and thus obtain lower comprehensive costs. A set of data from Counterpoint shows that in 2018, half of the Indian mobile phone market was imported in the form of SKD (semi-loose assembly) and CKD (full loose assembly) was 34%, but by 2019, CKD has accounted for more than two-thirds of the proportion.

"The speed with which China's mobile phone industry chain is being built is astonishing." An analyst who has been tracking domestic mobile phones for a long time told reporters that Chinese brands only took more than a year to quickly transform from SKD to CKD to complete localization, and won nearly 75 percent of the market share on the Indian mobile phone sales list.

180 million export orders are gone

    According to a report by economic think tank Global Trade Research Initiative (GTRI), India's imports of electronic products such as laptops, personal computers, integrated circuits and solar cells from China have declined during the 2022-2023 period.

At present, China's exports to India are mainly based on electronic components, batteries, primary chemical particles, plastics, plastics and other raw materials. According to Chinese customs statistics, from January to June this year, the total value of China's imports and exports to India was 66.027 billion US dollars, down 0.8% year-on-year. Among them, the export was 56.531 billion US dollars, down by 0.9%; Imports were $9.496 billion, down 0.6 percent.

In all categories, mobile phone components and equipment remained the top, with exports of $1.74 billion, while overall smartphone exports were $306 million. But in terms of dollar value, the former fell 52 percent year-on-year, while the latter fell 24 percent year-on-year.

    This is not a recent trend. According to Indian Customs statistics, India's mobile phone imports have dropped from 200 million in 2014 to 3.77 million in 2022, shrinking by more than 98%, and imports from China have dropped from 179 million to 2.19 million.

This evidence shows that, at least in the manufacturing of mobile phones, Indian consumers need mobile phones have basically achieved self-sufficiency.

    The shift of mobile phone manufacturing to India has not stopped.

    Apple CEO Cook has repeatedly stressed the importance of the Indian market in the earnings report, and sees it as the next major market to promote Apple's growth, or even one of the most important markets. This year, Apple plans to launch the iPhone 15 series in India and increase its investment and layout in the country.

    In March this year, a photo of Foxconn Chairman Liu Yangwei shaking hands with Indian Prime Minister Narendra Modi was circulated on overseas social media, and Liu Yangwei's trip to India was interpreted by the outside world as a signal of Foxconn's increased investment in India, including the expansion of manufacturing plants and the construction of silicon carbide processing plants and chip packaging facilities.

Although Foxconn subsequently denied specific investment moves, it is reported that Foxconn will start production of the latest iPhone in the southern Indian state of Karnataka in April 2024. The government of the southern Indian state of Karnataka has said the project is worth 130 billion rupees ($1.59 billion) and is expected to create about 50,000 jobs.

    The new manufacturing sites and expansion plans will boost India's market share in iPhone assembly to 10 to 15 per cent, from less than 5 per cent now, according to Bloomberg.

In addition to Apple, handset manufacturers including Xiaomi, OPPO and vivo have implemented local manufacturing in India.

Shilpi Jain told reporters that Xiaomi has also recently partnered with Dixon to expand its smartphone manufacturing capacity in India, while vivo plans to expand its manufacturing capacity in India by the end of 2023. However, the official mobile phone manufacturers did not further confirm the above expansion news.

    Guo Zijiao, an analyst at research firm Omdia Display, believes that the configuration of global supply chains is ultimately determined by costs and the market. The most important advantage of cost comes from scale, followed by investment and material costs, and also depends on management. "Parts are a capital - and technology-intensive industry