In the welter of discussions in Australia about ‘innovation’, ‘agility’ and being ‘nimble’ in the marketplace, it is timely for us to consider China’s own inventive shanzhai culture and its consumers. In fact, it is especially fitting to reflect on shanzhai as a form of disruptive innovation this year, which marks half a century since the onslaught of the Cultural Revolution in 1966.
Callum Smith, who is twenty-three this year, is a former IT programmer, a translator and a China scholar. In 2015, he completed an Honours thesis, ‘China’s Shanzhai Entrepreneurs: Hooligans or Heroes?’, at The Australian National University. — The Editors
Pi County 郫县 in Sichuan province, famous for its ‘spicy fermented sauce’ 豆瓣酱, is also home to Comrade X, one of China’s 273 million migrant workers. He moved to Shenzhen on the Guangdong border with Hong Kong to take advantage of the country’s economic boom and to support his family in Sichuan. He earns an average monthly migrant 农民工 wage of RMB 2864 (AUD$620). During his lunch break, you won’t find Comrade X at such popular yuppie hangouts as Starbucks 星巴克 sipping RMB 36 (AUD$7.50) lattes, although back in Pi County over the Spring Festival you might have run into him at Starfucks 墨巴克, a local coffee outlet with an arresting name inspired by the American franchise.
As he drinks Sino-coffee for around RMB 10 (AUD$2) Comrade X might well be wearing the latest ‘ZARE’ couture while watching the TV news streaming on his HiPhone. Back in Guangdong, his girlfriend — a sales consultant at a small stall in one of Shenzhen’s many wholesale electronics markets — sports a ‘high-end replica’ 高仿 Louis Vuitton bag and makes a living selling ‘domestically produced’ 国产 and ‘smuggled’ 水货 smartphones. The imitation products that festoon the couple’s lives are part of ‘shanzhai 山寨 China’.
Shanzhai, the word means roughly ‘mass-produced imitation goods’, has created a Chinese landscape that is littered with products derided by the media, Chinese and international, as ‘copycat’, ‘guerrilla counterfeits’ and ‘knockoffs’, all the work of thieves. Those who feel that their intellectual property and copyright has been infringed by shanzhai producers describe the products as ‘rubbish’, ‘piracy in disguise’ and ‘hooligan’. Regardless of such righteous outrage, shanzhai — the producers, the products and the mentality — continues to flourish as an essential, quasi-legitimate shadow dimension of the Chinese economy. And, in practical terms, shanzhai products give disenfranchised ‘non-consumers’ of the orthodox economy — that is, people who would like to own but can’t afford the ‘original’ products — cut-price access to high-end technologies, as well as offering aspirational shoppers consumer satisfaction. For the ruling Chinese party-state, tolerance of the legally ambiguous phenomenon of shanzhai might also contribute to social stability.
Shanzhai Takes the Stage
The shanzhai-ification of China was officially recognised on 2 December 2008 when China Central Network Television (CCTV) Network News reported on shanzhai culture, the first mainstream media acknowledgement of the phenomenon. Long before the CCTV report, however, the market for shanzhai telephones had been flourishing. In 2007 alone, a full year before that initial news report, an estimated 150 million shanzhai handsets were on the market. They generated a total annual revenue for producers of USD$40 billion and sustained approximately 200,000 jobs.
Shanzhai 山寨 literally means ‘mountain stronghold’. The term crops up in late-dynastic fiction but the more immediate use of the word is the Cantonese saanjaaih 山寨 (shanzhai in standard Chinese), a term connoting black-market business practices. Jaaih 寨, the second part of saanjaaih, literally means ‘stockade’. It was used in Hong Kong from the 1940s to refer to unlicensed and unregulated brothels, as in the term geihjaaih 妓寨, literally ‘prostitute holdout or stockade’. The saanjaaih chong 山寨廠 that operated in remote areas of the British colony in the 1950 and 1960s became known for producing inferior-quality ‘homebrew’ or ‘homemade’ products. The covert nature of their operations, and their distance from the long arm of the law, allowed them to avoid prosecution by the authorities although they were involved in shady and often illegal business practices. In the Noughties, the cheap, feature-rich imitation mobile phones first produced in the shadowlands of Shenzhen — typically labelled with subtle variations on brand names, such as ‘NOKLA’ instead of ‘Nokia’ and ‘Samsang’ instead of Samsung — were originally called ‘black phones’ 黑手机. Drawing inspiration from the nearby territory of Hong Kong, producers and consumers were soon calling them ‘shanzhai handsets’, or shanzhaiji 山寨机. (The expression shanzhaiji is an abbreviation of shanzhai yidong dianhua shouji 山寨移动电话手机.)
Despite widespread criticism, the existence of patent laws and constant assurances from officialdom that China is cracking down on IP infringement, the shanzhai economy has lost none of its vigour or appeal. In 2015, estimates placed the number of shanzhai telephone handsets made in that year at 300 million. Given the fact that when it so chooses the Communist Party can act with relentless efficiency in dealing with issues that it regards as a real threat, it seems likely that the ‘hooligans’ behind shanzhai handset production could be brought to heel if the authorities were earnest about enforcement. Indeed, as one Shenzhen-based entrepreneur suggested to me in an interview in July 2015:
Shanzhai enterprises operate on the fringes of the law. Why doesn’t the government crackdown on shanzhai? …
Xi Jinping’s government values social harmony above all else 以和为贵. Similarly, his predecessor Hu Jintiao’s government promoted a ‘Harmonious Society’ 和谐社会. In order to maintain harmony above all else, unless a legitimate threat to public security is detected, the Chinese government will turn a blind eye to many otherwise legally ambiguous phenomena.
All-Consuming Disruptive Innovation
Prior to the 2003 emergence of ‘black phones’, even basic (that is, not ‘smart’) mobile phones, which were priced between RMB 6400 to 8000, were considered a luxury item by migrant workers, and even most Chinese consumers. With the appearance of cheap ‘shanzhai handset’ mobile phones which cost a few hundred yuan, the number of mobile phone subscriptions in China grew from 270 million in 2003 to 1.2 billion in 2013.
The concept of ‘disruptive innovation’ was described as early as 1997 by the Harvard academic cum-business guru (and fervent Mormon) Clayton Christensen in his bestseller The Innovator’s Dilemma. In that much-hyped book Christensen promoted the idea that for successful companies to stay successful they had to prepare for future consumer trends and technological change by appreciating the importance of what he dubbed ‘disruptive innovation’, or by pre-empting unexpected change through the far-sighted creation of new markets. I would suggest, that Chinese-style disruptive innovation actually unsettles existing markets via the creative adaptation of existing technologies which then generates new markets, embracing consumers like Comrade X who featured in the opening vignette of this essay. Indeed,
The innovation transforms something that used to be so costly, only the very rich had access to it. These innovations make it so affordable and simple that normal people can do what only the rich and very skilled could do before.
So-called ‘disruptive firms’ do not solely compete in existing markets. They instead seek to generate growth by meeting the needs of ‘non-consumers’ — that is, those unable to the afford the offerings of incumbent firms. For China’s ‘disruptive non-consumers’, shanzhai products offer affordable alternatives that are both functional and fashionable. Shanzhai products potentially mitigate the impacts of income inequality by providing lower-income earners with access to a shadow market of goods that resemble desirable products otherwise beyond their reach. As a certain Old Cai — a typical ‘non-consumer’ — put it in a 2010 interview, the materialistic yearnings of lower-income earners is partially fulfilled by the shanzhai economy:
We don’t just buy shanzhai phones. We also buy shanzhai clothes, shanzhai watches, shanzhai cooking utensils, shanzhai belts — anything that’s an imitation of a brand-name product. We like to buy all sorts of shanzhai stuff. It’s not that we don’t know that they’re low-quality imitations. We simply can’t afford the real deal. But we’re vain too. So we buy shanzhai copies — you know, for show.
A Moderately Prosperous Shanzhai Society
Although many shanzhai products violate Chinese copyright laws, the government’s tolerance of them may, in part, be attributed to the Party’s continuing aims of maintaining social unity and stability. More recently, the Party has aimed to ‘Construct an Harmonious Society’ 构建和谐社会, first propounded under Hu Jintao in 2004. This now complements the Party’s ‘first centenary goal’ (1921-2020) of making China a ‘Moderately Prosperous Society’ 小康社会 by 2020, one hundred years since the founding of the Communist Party. In light of these policy settings, the Party may well covertly tolerate shanzhai consumption because it serves its interests. According to Duan Liyue 段礼乐, a legal scholar at Shenzhen University, the logic of aspirational consumption that lurks behind the purchase of shanzhai products, and the sheer size of the ‘non-consumer’ demographic that buys them, has quietly led to a government decision not to enforce intellectual property laws too rigorously:
There is a widely held view that China’s poor implementation of intellectual property protection is the cause of the rampant shanzhai phenomenon… . As a matter of fact, it was not ineffective enforcement of intellectual property laws that caused the shanzhai phenomenon to emerge. It was, to the contrary, the logic of consumption behind the purchase of shanzhai products that led to the non-enforcement of intellectual property laws.
Although shanzhai products theoretically lessen the social impact of income inequality, ironically, the consumption of second-rate ‘knock-offs’ reinforces the social divide between those who can and those who cannot afford the originals. Indeed, the rise of shanzhai products has hardly dampened the Chinese consumer’s desire for authentic expensive products. In a 2011 survey conducted by the China Market Research Group, for example, luxury goods were deemed the third most desirable possession among Chinese consumers under the age of twenty-six (after a house and a car).
In 2012, Chinese consumer obsession with luxury mobile phones and the sometimes extreme measures that they pursued to procure them became the subject of an infamous Internet meme: ‘Sell a kidney to buy an iPhone’ 卖肾买苹果. This phrase originated with a media report about a seventeen-year-old boy who had sold one of his kidneys for 20,000 RMB so he could buy the latest iPhone and an iPad. Although there are no official statistics on the trade in kidneys, surveys suggest that many members of China’s aspiring middle class live frugally so they can occasionally splurge on luxury goods. It’s a phenomenon first described by Thorstein Veblen in his 1899 classic The Theory of the Leisure Class in which he notes that:
…[P]eople will undergo a very considerable degree of privation in the comforts or necessaries of life in order to afford what is considered a decent amount of wasteful consumption; so that it is by no means an uncommon occurrence, in an inclement climate, for people to go ill clad in order to appear well dressed.
Although acquiring a shanzhai copy may offer a similar experience to that of someone who can afford to buy the original product, the juxtaposition of the ‘fake’ to the authentic original reinforces perceptions of class distinctions and social inferiority. The consumption of shanzhai imitations thus serves to reinforce the status hierarchies implied by the ownership of the authentic product. Consumption of shanzhai imitations reaffirms the buyer’s social status as a ‘non-consumer’ of authentic products, and it can make the original product even more desirable by comparison. Such overt social contradictions are noted by the novelist Yu Hua 余華 in his 2011 China in Ten Words:
When health is impaired, inflammation ensues, and the copycat [shanzhai] trend is a sign of something awry in China’s social tissue. Inflammation fights infection, but it may also lead to swelling, pustules, ulcers, and rot.
But is anything really awry? Or is China merely on a trajectory to the ‘new normal’ 新常态 of consumer-driven economic development?
Author’s Note: This essay draws on my Honours thesis, ‘China’s Shanzhai Entrepreneurs: Hooligans or Heroes?’, completed under the supervision of Geremie R Barmé at the College of Asia & the Pacific, The Australian National University, 2015. My thanks to Professor Barmé for the further editorial suggestions he made when reviewing this piece.
 ‘Bureau of Statistics Publishes the 2014 Report from the Survey of Migrant Workers’ 统计局发布2014年全国农民工监测调查报告, the online portal for the Central Government of The People’s Republic of China 中央政府门户网站, 29 April 2015, online at: http://www.gov.cn/xinwen/2015-04/29/content_2854930.htm.
 ‘Starfucks, Yongdou Hejiang … Sichuan’s Shanzhai Alley is Really Something’ 墨巴克、永豆和漿 … 四川山寨一條街超雷人, The Epoch Times, 11 July 2014, online at: http://www.ettoday.net/news/20140711/377456.htm; and, ‘A Shanzhai Alley of Brand Name Products Appears on Xihuxi Road in Wuxi — With Truly Shocking Shopfronts and Signs’ 品牌山寨街现身锡沪西路 店铺招牌雷翻众人, Sina, 7 January 2014, online at: http://wx.sina.com.cn/news/wxnews/2014-01-07/085234550.html; and, ‘The Best of the Shanzhai Mobiles: Hiphone vs iPhone’ 最强山寨手机Hiphone挑战iPhone, NetEase, online at: http://mobile.163.com/special/001127IL/hiphone.html.
 Lessley Anderson, ‘3 Lessons Apple’s Jony Ive Learned from Steve Jobs’, Vanity Fair, 10 October 2014, online at: http://www.vanityfair.com/news/tech/2014/10/jony-ive-lessons-from-steve-jobs. See also Yu Hua, China in Ten Words, Alan H Barr trans, New York: Pantheon Books, 2011, p.261; Winnie Won Yin Wong, Van Gogh on Demand, Chicago: University of Chicago Press, 2014, p.142; and, David Barboza, ‘In China, Knockoff Cellphones are a Hit’, The New York Times, 27 April 2009, online at: http://www.nytimes.com/2009/04/28/technology/28cell.html?_r=0.
 Pei Yu 裴钰, ‘Shanzhai Breaks Laws, and Shanzhai Culture is a Rubbish Culture’ 山寨触犯法律 山寨文化是一个垃圾文化, Tencent News, 7 March 2009, online at: http://news.qq.com/a/20090307/001066.htm; ‘The Celebrity Committee Member Ni Ping Calls for an End to Public Discourse on Shanzhai’ 明星委员倪萍提案封杀“山寨” 舆论哗然一片, Pipi Entertainment News 皮皮娱乐, 3 March 2009, online at: http://ent.pipi.cn/info/7/7913.html; and, Zhu Dake 朱大可, ‘Shanzhai Culture is a Deconstructive Social Movement’ 山寨文化是一場社會解構運動, Sina, 15 January 2009, online at: http://news.sina.com/ch/phoenixtv/102-101-101-110/2009-01-15/16413565607.html.
 ‘Shanzhai Mobile Handsets Snatch the Low-end of the Market, Experts Call it Infringement’ 山寨手机抢低端市场 专家称侵权, Sohu 搜狐, 2 December 2008, online at: http://tv.sohu.com/20081202/n260982719.shtml.
 The 150 million shanzhai handsets represented nearly a quarter of a total 750 million handsets produced in China that year. See ‘China’s “Bandit Phones” Making Big Scores’, CNN, 3 September 2009, online at: http://edition.cnn.com/2009/TECH/07/29/china.fake.phones/.
 Chao‐Ching Wei et al, ‘Exploring the Industry Follower’s Entry Strategies from China’s Bandit Business Model’, Chinese Management Studies, vol.7, no.3 (2013): 369.
 Chen Xiaolang 陈小朗, ‘Shanzhai — Slang from the Red Light District’ 山寨 — 源于花街柳巷的俚语, Yangcheng Evening News 羊城晚报, 25 June 2009, online at: http://www.ycwb.com/ePaper/ycwb/html/2009-06/25/content_528326.htm; and, Gao Tianqiang 高添強 and Li Jian 李建, Colourful Hong Kong 1940s-1960s 彩色香港 1940s﹣1960s, Hong Kong: Joint Publishing HK 三聯書店 (香港) 有限公司, 2013, p.8. The billionaire Li Ka-shing 李嘉誠 is said to have operated saanjaaih chong throughout the 1950s. See http://www.91jucai.com/finance/chanye/2015-06-26/32518_2.html.
 Chen Xiaolang, ‘Shanzhai — Slang from the Red Light District’.
 Peng Sizhou et al 彭思舟等, The Economic Revolution of Shanzhai 山寨經濟大革命：模仿為創新之母, Taiwan: Showwe Information Co. 秀威資訊, 2009, p.31.
 Other terms for mobile phones in Chinese include: 移动电话; 行动电话; and, 手提式电话.
 William P Alford, To Steal a Book Is an Elegant Offense: Intellectual Property Law in Chinese Civilization, Redwood, CA: Stanford University Press, 1995, p.69; and, Andrew Mertha, The Politics of Piracy: Intellectual Property in Contemporary China, Ithaca, NY: Cornell University Press, 2005, p.77.
 Wade Shepard, ‘China’s Copycat Manufacturers are now Pushing the Boundaries of Innovation’, South China Morning Post, 20 May 2015, online at: http://www.scmp.com/native/business/topics/invest-china/article/1802238/chinas-copycat-manufacturers-are-now-pushing.
 See, for example, the media blackout imposed by the authorities following the Tianjin Haibin Explosion in August 2015. ‘Chinese censors have blocked 50 websites for “spreading rumors” about the Tianjin explosions’, Quartz, 17 August 2015, online at: http://qz.com/481679/chinese-censors-have-blocked-50-websites-for-spreading-rumors-about-the-tianjin-explosions/.
 Interview conducted by the author for ‘China’s Shanzhai Entrepreneurs: Hooligans or Heroes?’, 17 July 2015, Shenzhen.
 John Villasenor, ‘China’s Wireless Industry in Ten Graphs’, Forbes, 20 June 2014, online at: http://www.forbes.com/sites/johnvillasenor/2014/06/20/chinaswirelessindustryintengraphs; and, ‘All the Phones in China’, The Economist, 1 March 2012, online at: http://www.economist.com/blogs/graphicdetail/2012/03/daily-chart.
 Craig Lambert, ‘Disruptive Genius’, Harvard Magazine (July-August 2014), online at: http://harvardmagazine.com/2014/07/disruptive-genius.
 ‘Why do Migrant Workers Like Shanzhai Phones?’ 山寨手机为何受农民工兄弟青睐?, Maixun Mobile (Sina Blog) 迈讯网手机, 23 July 2010, online at: http://blog.ifeng.com/article/6522989.html.
 ‘Building a Socialist Harmonious Society’ 构建社会主义和谐社会, online at: http://dangshi.people.com.cn/GB/221024/221027/14907139.html.
 ‘Comrade Jiang Zemin Proposes the Comprehensive Construction of a Moderately Prosperous Society’ 江泽民同志提出全面建设小康社会, online at: http://theory.people.com.cn/n/2012/1024/c350701-19376357.html.
 Duan Liyue 段礼乐, ‘Shanzhai and Chinese Consumerism’ 中国的消费主义与“山寨”, Guangming Daily 光明网, 7 November 2009, online at: http://www.gmw.cn/02blqs/2009-11/07/content_1054743.htm.
 Shaun Rein, The End of Copycat China, New Jersey: John Wiley & Sons, 2014, p.145.
 ‘A high school student sells his kidney for RMB 20,000 to buy an iPhone, parents report to the authorities’ 高中生为买苹果手机卖肾只得2万 家人报警, Sina, 9 August 2012, online at: http://news.sina.com.cn/s/2012-08-09/091824936505.shtml. The phenomenon continued in 2015: following the launch of the iPhone 6S in September that year, a popular WeChat joke featured the posting pictures of the iPhone tagged at the location of a kidney transplant hospital with captions urging viewers not to be ‘so vain’ (as to sell a kidney for a phone). See ‘Young Man Actually Sells Kidney to Buy iPhone 6S’ 男子为买iPhone 6s手机: 真的去卖肾了, NetEase 网易科技, 15 September 2015, online at: http://tech.163.com/15/0915/08/B3HRON4J000915BF.html.
 Shaun Rein, ‘For Louis Vuitton Being Too Popular in China Is Not Good’, CNBC, 15 November 2011, online at: http://www.cnbc.com/id/45282770; and, Megan Willett, ‘Louis Vuitton is Now a ‘Brand for Secretaries’ in China’, Yahoo Finance, 27 February 2015, online at: http://finance.yahoo.com/news/louis-vuitton-now-brand-secretaries-213713336.html.
 Thorstein Veblen, The Theory of the Leisure Class, Mineola, NY: Dover Publications, 1994, p.103.
 Barton Beebe, ‘Shanzhai, Sumptuary Law, and Intellectual Property Law in Contemporary China’, UC Davis Law Review, vol.47 (2013): 863-864.
 Yu Hua, China in Ten Words, p.276.