Shanzhai ji: All you need to know about fake phones

Zhu Chenghao takes a drag on his cigarette as he pulls out his latest top-selling phone — the iPhone Mini. He may be less charismatic than Steve Jobs but is every bit as keen to show those all too familiar features from a full-size iPhone: the touchscreen, integrated media playback, games, colourful icons and stylish curved finish.

Click here for our full gallery of Shanzhai counterfeit mobile phones. Proudly sponsored by President Obama and his Windows Mobile BlockBerry.
(Credit: Brendon Chase/CBS Interactive)

But as the Apple CEO would say, "that's not all". The iPhone Mini includes features Apple is yet to announce in its smartphone: an FM radio player, dual-SIM card support, Java, external storage via miniSD and video recording, to name just a few.

"Shanzhai," Zhu says with enthusiasm as he shows off the shake-to-shuffle feature.

Welcome to a Shanzhai tech market in Shanghai, China. Shanzhai is the Chinese term used inside the middle kingdom for counterfeit or copied goods. The direct translation of Shanzhai (山寨) is "mountain village" and is used to refer to the small, low-quality factories in southern China. It's a blanket term for a range of counterfeit goods ranging from designer bags and clothing to tech gadgets, cars (even Formula One race cars) and helicopters.

The motivation behind manufacturing most fake goods is profit. Companies leverage a brand name or luxury product illegally, build a cheap imitation version and sell it at a lower price. However, there is also a sub-culture of enthusiasts who simply enjoy the challenge of reverse engineering sophisticated technology — DIY style — which can produce amazing results, considering the tools at the disposal of the Shanzhaiists.

This bustling Shanghai tech market is full of Shanzhai electronics and is typical of malls that can be found across China. In the case of Shanzhai mobile phones, or Shanzhai ji, it's big business. In 2008 it was estimated that more than 80 million Shanzhai phones were produced in China and constituted around 20 per cent of the domestic market. Half of the Shanzhai phones produced were exported to markets such as India, Eastern Europe, Africa, South East Asia, the USA and even Australia. Fake iPhones originating from China regularly surface on eBay Australia.

At local tech markets in Shanghai, a good iPhone copy can set you back between AU$80 and AU$150. Go to a local tourist market and prices are inflated to AU$300 and beyond, and vendors at such tourist markets often insist that their products are the real thing.

While the phones may seem like a good deal, they come with a few catches: the software is often clunky and hard to use, there's no warranty expressed or implied, the phones may pose a health hazard because they don't have to pass through any official testing and may not adhere to the relevant safety standards, and they are illegal.

Industry insiders say the task of policing Shanzhai phones is difficult because of the decentralised nature of the manufacturing process. Factories work in small teams with a few employees, mostly in southern regions of China, in back shops and houses. Shanzhai phones destined for foreign countries are smuggled over lax borders where they bypass government taxes, circumventing safety checks and regulations. Bypassing these overheads and using cheap and accessible hardware with pirated software — usually Windows Mobile — results in a decent profit for those in the Shanzhai phone food chain.

India, said to be the largest export market for Shanzhai phones, recently banned the importation of counterfeit phones from China. To deter buyers, who may still seek the phones on the black market, the country is currently understood to be investigating technical measures to prevent Shanzhai phones from connecting to the country's mobile phone networks.

Whether this will be a successful countermeasure or whether countries like Australia will also adopt similar plans is yet to be seen. Matt Tett, a director at testing company Enex Labs, believes technical measures could prove difficult and that phone vendors and the industry should stay focussed on creating high quality, next-generation phones.

"The research and development [of Shanzhai phones] is always going to be behind, say, a real iPhone," Tett says.

Part of the reason for this is the low investment in new technology by Shanzhai phone makers and their dependence on cheap and freely available chipsets from companies like MediaTek and Huawei running pirated operating systems, like Windows Mobile. Industry analysts believe the near future won't deliver a dramatic improvement of the usability of the pirate phones.

"Shanzhai [makers have] a very weak research and development capability, and they are heavily dependent on the current platform. While new open source platforms like Android are [around], in the short term they will continue to run Windows Mobile," says Shi Lei, a research analyst at BDA Connect.

Back in the Shanghai tech market, Zhu Chenghao is asking what phone I want to buy today.

"Not today," I respond.

"Tomorrow?" Zhu responds eagerly.

"Maybe. Maybe," I respond politely.

"OK, I see you tomorrow," I hear Zhu say as I head for the exit.