In Shenzhen, South China's Guangdong Province, the Huaqiangbei commercial area is known for its giant electronics market. When Shenzhen adopted the reform and opening-up policy in late 1970s - seen as the engine of China's rapid growth - a large number of electronics companies moved into the area, which later became the biggest electronics market in the country. The vendors there sell everything from smartphones to cameras, from light-emitting diodes (LEDs) to bulk cables. Meanwhile, Huaqiangbei also became known as a haven for counterfeit electronics dealers. However, since local authorities started cracking down on counterfeit electronics in 2010, the copycat business has been dying. Global Times' reporter visited Huaqiangbei to find out how the market's vendors are trying to reshape their business models.

People pass by exhibition booths on July 22 set up by merchants in Huaqiangbei area, a giant electronics market in Shenzhen, South China's Guangdong Province. Photo: Chen Qingqing/GT

Lin Yanhao, a 26-year-old business manager who works for Shenzhen Langmei Technology Co, walked around the SED Electronics Market in the city's Huaqiangbei area on a recent Wednesday morning.

"Since the beginning of 2015, many merchants here have started selling wearable devices," Lin said, noting that almost every electronics manufacturer in Huaqiangbei is good at following market trends.

As US tech giant Apple Inc's Apple Watch hit stores in April, many merchants in Huaqiangbei concluded that wearable devices would become profitable sooner or later, Lin told the Global Times on July 22.

"That was why many merchants have switched from selling tablet computers to wearable devices," he said.

Lin has been running Langmei's counter at the SED Electronics Market since April. The company pays 14,000 yuan ($2,253) a month to rent a space there.

However, it does not expect the counter to continuously generate profits, said Zeng Feiqiang, the company's representative in charge of international sales. The place serves as a marketing tool.

Langmei is one of many companies with a presence in Huaqiangbei, a commercial area often compared with Silicon Valley, the home to thousands of start-ups and high-tech companies in the US.

From the ashes of shanzhai

Back in the 1990s, many Western countries began outsourcing manufacturing to Guangdong Province, which made Shenzhen one of South China's major hubs for original equipment manufacturers (OEMs) of consumer and technology products, according to a report on Shenzhen's innovative capacity published in April by the Hong Kong-based intelligence unit Fung Business Intelligence Center.

Many shanzhai cases blatantly flout intellectual property laws. However, producing counterfeit brand electronic goods also trained many factories how to produce products in small batches, make minor modifications and get them to market as quickly as possible, the report said.

As soon as three or four high-tech entrepreneurs had an idea, they would rent a small space in Huaqiangbei and build prototypes, a person close to the matter who refused to be named told the Global Times on July 22.

"Sometimes, they didn't even need an office; they could quickly come up with a batch of new gadgets," he said.

With innovation increasingly coming from the grass roots level, the shanzhai culture in Huaqiangbei may herald a new stage of open source giving rise to strong, legitimate enterprises and new business models, Cheng Yimu, executive president of the Shenzhen Electronic Chamber of Commerce (SECC), told the Global Times on July 24.

Before the investigation into copycats, up to 10 million shoppers went to the Mingtong Electronics Market in Huaqiangbei every day, the local newspaper Shenzhen Economic Daily reported in June.

The market's vendors sold 30 million yuan worth of mobile devices each year, and could individually earn as much as 200 million yuan a day, according to media reports.

However, the crackdown on counterfeit electronics has shut down many illicit manufacturers and companies in Huaqiangbei, Lin from Langmei said.

For example, about 30 percent of the counters at the SED Electronics Market have closed in recent years.

To distinguish its wearable devices from well-known branded products, Langmei has tried to improve its original design.

"We came up with a smart device only for children, which is much less expensive than the Apple Watch," Lin said.

He noted that the company's smartwatch for children can help parents locate their children and can alert them when their children stray from specified areas.

An evolving electronics market

While China's e-commerce giants such as Alibaba Group Holding and JD.com Inc are reshaping the retail and wholesale businesses, a more open information-sharing platform, powered by Internet, has been established in Huaqiangbei, said Cheng from the SECC.

"Prices have become a lot more transparent, as customers and suppliers can always find product information online before they reach out to merchants," Cheng told the Global Times on July 23, noting that a more transparent pricing system will legitimatize the market.

Mehmet Inen, a Turkish businessman who works at SEG Plaza, said he has been working with Langmei over the last few years to build up the company's online portfolio on business-to-business (B2B) websites such as globalsources.com and alibaba.com.

"Now everybody is checking products online," he said, noting that customers can view many suppliers at the same time, which makes the market much more competitive than it was few years ago.

Cheng said that without innovative designs, small and medium-sized companies will have a hard time surviving in a more competitive market.

Although the crackdown on counterfeits has affected many small and medium-sized companies that produce mobile devices, more than 50 percent of Huaqiangbei's merchants are mainly engaged in manufacturing and trading electronics components, Cheng said.

"There is a full-scale supply chain here in Shenzhen in terms of producing electronics, which should also be a major advantage to develop innovative high-tech industries," he said.

To enhance its OEM and Original Design Manufacturer (ODM) products and to expand its domestic and international sales networks, Langmei added several production lines dedicated to mobile device components at its factory in Bao'an district, located in the west of Shenzhen.

The new production lines are expected to start operating in August. The company has recently started producing smartphone components for Pakistani smartphone company Qmobile, Zeng from Langmei noted.

"It's an opportunity to enhance the company's strengths in OEM and ODM production," Zeng said.