Whether you view China's shanzai workshops as clever innovators or outright bandits, there's no denying that they're good at what they do. Shanzhai cellphones accounted for about 20% of the global 2G mobile market in 2010, and shanzhai companies like Baidu and Tencent are now emerging as world-class players in age of internet commerce. The name "shanzhai" is a reference to historical warlord hideouts, nestled high in the mountains beyond the reach of government control, and today describes counterfeiters and gadget-makers with a similarly healthy disrespect for the law. To their detractors, the shanzhai are shameless imitators, selling cut-rate knockoffs under names like SQNY electronics, Bucksstar coffee, Blockberry, and Hiphone. To others, they are creatively borrowing and building on available ideas, improving products and adapting them to local markets. The "Nckia" brand name might be a blatant rip off, but the built-in flashlight could be useful in areas without reliable electricity, and who wouldn't want a combination cigarette box and cell phone?
While the line between innovation and adaptation is never distinct, this controversial style certainly does toe the line of outright theft. As a result, the shanzhai occupy a strange place in China: a 2009 editorial in a state-run newspaper called shanzhai culture "a celebration of the DIY spirit", while also noting that the government needed to "remain vigilant against it as a justification for rip-off products." As long as Chinese firms remain the technological underdogs, we probably shouldn't expect a strong attempt to control the workshops, however: the companies provide a lot of jobs for a lot of people and are an increasingly important source of exports to places like the Middle East and Africa. Blatant ripoffs also allow China's nouveau riche to display their new-found wealth without having to spend it all in the process, perhaps by picking up a "99% accurate" copy of the $400,000 Lamborghini Murcielago for just $66,000.
While knock-offs aren't necessarily strong candidates for creative design, things get interesting when shanzhai products include liangian (shiny points) in their design. The majority of customers aren't interested in the underlying technology, after all, and are more interested in status and functionality. The shanzhai might try tricking out their smartphones with big speakers or an optical zoom lens, or adding a tazer or counterfeit bill detector to the back. Those might be actually be considered interesting (if impractical) innovations over the standard design. And sometimes the adaptations do represent legitimate improvements: many knock-off HiPhones contain two SIM-card slots, for instance, allowing users to run two phone numbers through the same handset. Adapting existing designs in this way not only allows Chinese firms to overcome a lack of capital and technology to hit it big on the world stage, but also to customize their products for local Chinese markets. Battery manufacturer BYD started off as a shanzhai workshop copying Japanese Ni-Cad battery designs, for example, but has now grown into a premeire electric vehicle manufacturer that supplies many of the taxis in its home city of Shenzhen. Other big internet firms are similarly rivaling the companies that inspired them, including Baidu (Google), Tencent (ICQ), Taobao (eBay), Renren (Facebook), and Sina Weibo (Twitter). Tencent's QQ social network has over 600 million active users and pulled in $1.2 billion in revenue, and many analysts believe Sina Weibo offers better functionality than Twitter.
The morality of what they do is, of course, a completely different story. It's one thing to stand on the shoulders of giants, and another to steal from their pockets while doing so. It will be interesting to see what happens as Chinese companies become technological front-runners and begin to suffer as much at the hands of the shanzhai as do their western counterparts now. Until then, expect a lot more Blockberries and Obama Fried Chicken.