By Sherry Qin

Apple lost its top spot in China's smartphone market, dethroned by local rival Xiaomi as Beijing's consumption-boosting subsidies help buoy demand for cheaper products.

The U.S. tech giant's share of China's highly lucrative phone market shrank to 13.7% during the quarter from 15.6% a year earlier, dropping Apple to fifth place in the ranking, according to preliminary data from research firm International Data Corporation.

Apple has been facing increasing competition in China in recent years. Despite claiming the top spot in the final quarter of 2024 with a marginal lead, the iPhone maker lost out to local rivals vivo and Huawei on annual shipments that year.

In the first three months of 2025, Apple's iPhone shipments in China dropped 9% to 9.8 million units, IDC said Thursday. That said, it was the only non-Chinese brand to make it to the top 5, the data showed.

Chinese tech giant Xiaomi, whose products range from smartphones and home appliances to electric vehicles, usurped Apple to take the lead during the first quarter, with shipments up nearly 40% on the year.

Huawei, which like Xiaomi also makes smartphones and is involved in EVs, took 2nd place in IDC's ranking while consumer electronics firm OPPO came third. The two Chinese companies shipped 12.9 million and 11.2 million units during the first quarter, respectively.

Xiaomi's return to the top spot after nearly a decade was largely due to "government subsidies that resonated with its value-conscious customer base," said Will Wong, senior research manager for Client Devices at IDC Asia/Pacific.

China's continued expansion of subsidies to get consumers spending again has been a boon for less-expensive brands.

In January, policymakers widened consumer subsidies to include smartphones, tablets and smartwatches. The price of products eligible for the subsidy is capped at 6,000 yuan, equivalent to $821.92, meaning that consumers can't use the benefit to buy products with bigger price tags.

Citi analysts reckon that the handset subsidy could spur some Chinese consumers to replace their phones with products that cost less than 3,000 yuan, a segment that makes up 75% of the country's smartphone user base.

Overall, the subsidies' effect on consumer demand seems to be subdued so far, IDC said, noting that though the Chinese smartphone market's first-quarter growth was robust it missed expectations.

Headwinds from the trade conflict between Beijing and Washington could dampen demand in the next quarters, as tit-for-tat tariffs raise business costs and hurt consumer sentiment.

"Looking ahead, the market is expected to face challenges as the U.S.-China trade tensions may lead to cost increases and tighter consumer budgets," said Arthur Guo, senior research analyst for IDC China.

Write to Sherry Qin at sherry.qin@wsj.com

(END) Dow Jones Newswires

April 18, 2025 01:08 ET (05:08 GMT)

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