A group of Chinese “grey market” handset makers is to consider manufacturing in India in an attempt to be recognised as legitimate suppliers in their most important export market.

The decision also reflects the effects on business of India's uneasy relationship with its eastern neighbour.

The Shenzhen Mobile Communication Association intends to take a dozen of its members to visit India this month to negotiate related ventures. “The goal is to set up several production or assembly lines with a total capacity of up to 10m units,” Tang Ruijin, executive president, told the FT. The manufacturers hope production in India will help them gain political capital in the country, and comes after India last year started to crack down on Chinese-made grey market handsets. Many of them lack legitimate identification numbers relevant for security purposes or product-quality certification.

Last year global handset volumes reached 1.14bn units, with China's “bandit” handsets, or cheap knock-offs of popular branded models, accounting for about 20 per cent of the global market.
According to BDA, a Beijing-based telecoms consultancy, Chinese grey market handset makers shipped about 235m units last year, 140m for export. This year, their exports could rise to 211m units. India has been their biggest export market. India is one of the world's fastest-growing mobile markets, with mobile penetration of slightly more than 40 per cent, according to Strategy Analytics.

Grey market handsets are devices lacking some or all measures of legitimacy such as licences, product certification, intellectual property or security IDs. They include outright counterfeits, unbranded phones and nascent brands. “Chinese handsets had grabbed up to 40 per cent of the Indian market last year, but we are being locked out of the market now,” said Mr Tang. “We must be seen as producing Indian handsets, with Shenzhen manufacturing know-how.” That strategy follows a high-profile pledge by Huawei, the world's second-largest telecoms gear vendor, last month to invest $500m in India to prevent the company being affected by broader tension between India and China. India has excluded Chinese companies from government tenders or infrastructure projects for national security reasons. In December, New Delhi imposed steep anti-dumping tariffs on certain Chinese telecoms networking gear.

None of the companies represented by Mr Tang's association is well-known, but the thousands of groups that make handsets or their components around Shenzhen have become a force in global markets.