Mr. Song Shiqiang’s Initial Exploration into Counterfeit Goods in Huaqiangbei

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Mr. Song Shiqiang’s Initial Exploration into Counterfeit Goods in Huaqiangbei

June 20
11:05 2024

Shenzhen Huaqiangbei, renowned as an international hub for electronic components and 3C digital products, stands as a core marketplace and ecosystem in China. Officially designated as “China’s Electronics First Street” by relevant national authorities, it rivals Beijing’s Zhongguancun in reputation. Where there are profits, there exists a diverse marketplace including both genuine and counterfeit goods, reflecting a microcosm of society and adding to the unique allure of Huaqiangbei.

Counterfeit goods in Huaqiangbei span a variety of types and methods. As an insider who has spent years undercover in this vibrant marketplace, I’ve gathered insights which I’m keen to share. Whether you’re navigating through the world of Beidou GPS antennas with Kinghelm Electronics, or exploring semiconductor solutions with SLKOR Semiconductor, Huaqiangbei’s nuanced dynamics offer a wealth of experiences and challenges.

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“Huaqiangbei” refers to an administrative district centered around Huaqiang North Road, spanning from South Shennan Road in the south to Hongli Road in the north, and from Huafu Road in the west to Shangbu Road in the east. Covering an area of approximately 1.45 square kilometers, this district is officially known as the “Shangbu Area” according to legal zoning maps. To enhance management of the Huaqiangbei area, renowned as “China’s Electronics First Street,” Huaqiangbei Street was established on July 1, 2009.

In addition to the Shangbu area, Huaqiangbei Street also includes the Tongxinling area (formerly part of Yuanling), the Municipal Party Committee Compound, Lychee Park, and Huaxin Village. The commercial district of Huaqiangbei, located within approximately 930 meters north-south and 1560 meters east-west, covers a core area of about 1.45 square kilometers. This area serves as a pivotal hub radiating to surrounding regions.

According to urban planning standards, such a core commercial district typically covers a living area accessible within half an hour, offering a wide range of amenities for daily life such as dining, entertainment, shopping, and educational facilities. Electronics components sold in Huaqiangbei are known for their high standardization, ease of preservation, transport, and storage, low weight for easy circulation, high value, potential for reuse (as refurbished goods), and economic value in recycling leftover materials. These factors contribute to Huaqiangbei’s influence not only in the Pearl River Delta, Yangtze River Delta, and Beijing’s Zhongguancun, but also extend to interactions with regions as far as Singapore, Malaysia, and Thailand.

These aspects collectively contribute to the prosperity and economic vibrancy of Huaqiangbei.

Huaqiangbei takes pride in its counterfeit goods, which have notably infiltrated the supply chain of the US military and been used in advanced fighter jets. In Huaqiangbei, one can assemble an iPhone for a few hundred yuan and half a day’s effort. New models of Huawei phones are available for purchase days before their official release, and knockoff versions of newly launched digital products from around the world can be found within three days. These capabilities stem from a robust distribution network and the forefront position of the grey market industry chain, representing Huaqiangbei’s core competitive advantage.

Refurbished (Disassembled) Goods in Huaqiangbei

Originating from overseas electronic waste, these goods were initially dismantled and roughly processed in local areas centered around towns like ChenX and GuiX in the Chaoshan region. Eventually, they flowed into Huaqiangbei for sale. The dismantling methods used included “smoking, smashing with hammers, acid washing, alkali floating, and scooping with sieves,” which were crude and efficient but caused significant environmental pollution due to their low added value. Over time, these operations had to relocate gradually to remote areas like Zhuhai and Qingyuan or even operate clandestinely in underground markets, yet Huaqiangbei remained the primary sales point using a front-store, back-factory sales and processing model. Previously, there was also a “bulk goods” model where entire containers or shiploads of foreign garbage were brought in, minimally sorted and classified, then wholesaled and sold in Huaqiangbei. Pricing was based on the lowest guaranteed alchemical value locally, with units sold in bags, pounds, piles, boxes, or even the number of IC pins. Initially, this was essentially a profitable enterprise, and these inventories in Huaqiangbei were substantial! After undergoing processes such as sorting, testing, acid washing, polishing, typing (screen printing/laser), tape spooling, and packaging, most were transported for sale in Huaqiangbei, streamlined through a comprehensive assembly line. Typing, tape spooling, repair, takeover feet, and BGA packaging ball planting were also separate businesses, with packaging sometimes being indistinguishable from the genuine. Early stories of sudden wealth among the wealthy in Huaqiangbei’s electronics circle often stemmed from this. Some people changed professions after making their first fortune, some laundered money, and some sang and danced to enjoy life. There were also those who upgraded their industries, moving towards the high end of the value chain, becoming traders or agents. A few ambitious bosses, utilizing their first bucket of gold earned in Huaqiangbei, developed into original factories with brands, channels, R&D, and production capabilities.

Low-value products such as capacitors and resistors are often bundled together with PCB boards and sent directly for refining precious metals when they have no refurbishment value. However, in previous years of shortages, some automotive-grade and military-grade capacitor and resistor materials were refurbished and resold. Chips like Flash memory, whose functions degrade and age with time, are rarely refurbished and reused when not in shortage, as even refurbished units hold limited commercial value. However, dismantled parts with intact functionality still offer good value for money in Huaqiangbei, thanks to its rich product variety, mature supply chains, ease of procurement, and comprehensive accessory offerings, contributing to its status as a thriving effective market. In recent years, the popularity of electric scooters has soared, and even after price wars, some manufacturers have directly purchased refurbished Mos tubes from Huaqiangbei, making substantial profits. Visitors from all over China and abroad frequently come to Huaqiangbei seeking old-model chips. According to insiders, X86 chips used for repairing old equipment in some foreign companies are sourced through Huaqiangbei. I often encountered foreigners shopping on Taobao in Huaqiangbei before; many backpackers also frequent the area.

At the same time, similar industries also exist in places like Lishui and Cixi in Zhejiang Province. Their products are mostly sold to electronic markets such as Zhongfa and Hailong in Beijing’s Zhongguancun area. However, these operations are smaller in scale, have shorter durations of existence, and employ fewer people.

Huaqiangbei’s Scatter New Goods

Let’s take a look at the processes and procedures of foundry factories. In order to ensure product quality and consistency, industrial products have a certain yield rate. Electronic components undergo processes like photolithography and acid washing in foundry factories. After completion, they are inspected. Dies on wafers that fail inspection are marked with red dots. A small portion of these components still holds some utility value and are bought through various channels as scrap, undergo simple testing and screening, and then resold. Similarly, during the packaging and testing stage of products, there are also such goods known as “scatter new goods.” These items differ from original equipment in terms of current, voltage, insulation level, yield rate, electrical indicators, pin flatness, memory capacity, etc., but can be downgraded for use in specific products. When these goods arrive in Huaqiangbei, daring bosses might sell them directly as original equipment, while those with a conscience or caution will inform buyers that these are scatter new goods, often at a significantly cheaper price than original equipment. In Huaqiangbei, it’s a rule to “label goods as they are,” and “penalize one for selling fakes” is a common saying among companies, serving as an informal quality standard in Huaqiangbei. During shortages, discontinuations of original equipment, or disruptions in the supply chain, some people make substantial profits!

Years ago, someone told me about terms like “white die, black die” in the storage component industry, referring to original goods and scatter new goods. “Black die” indicates storage sectors/quadrants that are partially damaged, with slightly reduced capacity and functionality but still usable. In recent years, cheap USB flash drives and memory cards falsely labeled with capacities were prevalent in Huaqiangbei following this trend.

Substituted Goods in Huaqiangbei

In Huaqiangbei, a large volume of goods are swapped, primarily focusing on resistors, capacitors, diodes, transistors, MOSFETs, and similar low-level and generic products. These products are highly standardized, with minimal differences in quality. For instance, MLCC capacitors come in standard sizes like 0805, 0603, 0402, 0201, typically packaged in 3K/5K units, and both reel and box sizes are uniform. Similarly, diodes, transistors, and MOSFETs are standardized in packages such as SMA, SOT-223, SOT-23, SOD-323, SOP-8, TO-220, and packaged uniformly, making substitution very straightforward. In Huaqiangbei, these products can easily be passed off as genuine.

When technical parameters are similar or nearly identical, previously it was mainly “domestic substitutes,” such as using LRC instead of SHARP, Yageo instead of Samsung, and Changjiang Electronics instead of AOS. In recent years, with the rise of Kinghelm and SLKOR, products like SLKOR’s diodes, transistors, and MOSFETs and Kinghelm’s Beidou antenna connectors have become best-sellers. Imitation products have emerged, marking a stage where “domestic substitutes” are now being replaced by “imitations,” marketed under brands like “Kinghelm” and “SLKOR.” We have mixed feelings—happy that after years of hard work, SLKOR has finally gained recognition and sales, yet concerned that soon there will be imitations that undermine our efforts in building the “SLKOR” brand.

In a corner of the third floor of Huaqiangbei’s Old Huaqiang Market, there are several small shops specializing in branding services. They store logos, coding rules, barcodes, QR codes, and other data in computers. In previous years, people queued up for branding services. Larger merchants in Huaqiangbei now simply buy their own branding machines. Shops also sell anti-static bags, desiccants, branded packaging trays, and vacuum sealers, offering comprehensive services.

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Counterfeit Goods in Huaqiangbei

Counterfeiting, as the name suggests in Huaqiangbei, means “using less to sell more, using lower-grade as higher-grade.” Products of the same brand and model are sold as civilian-grade instead of industrial-grade, industrial-grade as military-grade, and military-grade as aerospace-grade, with the brand and model unchanged, only changing the suffix letters, such as changing ‘I’ to ‘V’, which doubles the price. Some also commonly use smaller capacities to pass off as larger ones, which is most common in storage products, such as selling 256K as 512K, 512K as 1G, and so on. There are also products like Flash, DSP, FPGA, etc., where they manipulate aspects like storage capacity, processing speed, resolution, etc. A few years ago, our SLKOR’s field-effect transistor SL13N50, with some improvements in technology, had a high cost-performance ratio and was in short supply. However, one day, an old customer feedbacked that our products were expensive, which we found incredible. Upon analysis, we realized that domestic imitations couldn’t have been produced so quickly. We took a competitor’s product and tested it in the lab, only to find that their parameters were the same as SLKOR’s SL13N45, one tier lower than ours, but counterfeited. After explaining to the customer, they insisted on using our SLKOR brand. After this incident, our trust in SLKOR’s products increased, gradually increasing the purchase volume of SLKOR’s new products.

These goods cannot be detected when aging or in standby at the beginning of testing, but problems arise when they work for a long time under harsh conditions! According to my estimation from Kinghelm, there is a high probability that the counterfeit goods that have infiltrated the US military supply chain come from this category in Huaqiangbei.

China Substitutes in Huaqiangbei

When foreign brands discontinue certain models but there remains market demand, Chinese fabless IC design companies often replicate these products. Due to the limitations of reverse engineering or cost considerations, they may produce simplified versions that retain only core functionalities or target specific markets. These versions, known as “white-label” or neutral products, are then distributed by dealers in Huaqiangbei under various brands, packaged and sold without explicit acknowledgement of their origin.

For instance, years ago, the UPD6453 IC model from NEC in Japan, originally priced around 18 RMB, was reverse-engineered by a company in Hangzhou, reducing production costs to around 3.5 RMB per unit. A certain boss surnamed Zhou in Huaqiangbei sold this model and bought a Land Rover Range Rover three months later. In 2011, the flooding in Thailand caused a halt in production at Sanyo’s semiconductor factory, leading to the discontinuation of the popular 2SC2078E power transistor used in Motorola’s GP88 walkie-talkies, which originally cost 0.25 USD each. Post-discontinuation, even residual stocks were inflated to 8 RMB. Subsequently, Chinese manufacturers like Wuxi Gudian and Quanguang developed their versions priced at around 0.5 RMB each. Quality may vary, but I discovered instances in Huaqiangbei where these products were repackaged and sold as original Sanyo goods.

Nowadays, domestic integrated circuit technology is becoming stronger with increasing support from the government, and the market environment is improving. Domestic design and testing companies can now openly promote their own brands and establish sales channels, which is a long-term positive development. It has been quite challenging to invest in R&D, build a brand, and establish distribution channels in the early stages.

MOSFET Transistors

Slkor Semiconductor has been progressing well in the direction of domestic substitution:

Slkor’s MOSFET transistor SL2301 replaces CJ Changdi, LRC Leshan, and VISHA’s CJ2301, LP2301LT1G, SI2301CDS.

Slkor’s MOSFET transistor SL2302 replaces CJ Changdi, LRC Leshan Radio, and VISHA’s CJ2302, LP2302LT1G, SI2302CDS.

Slkor’s MOSFET transistor SL2309 replaces LRC Leshan LP2309LT1G and VISHA’s SI2309CDS.

Slkor’s MOSFET transistor SL3409 replaces CJ Changdi, LRC Leshan Radio LP3409LT2G, Youtai Semiconductor UMW3409, VISHA AOS Semiconductor AO3409.

Hall Sensors

Slkor’s Hall sensors:

SLSS41F replaces Honeywell SS41F.

SLSS360 replaces Honeywell SS360.

SLSS451A replaces Honeywell SS451A.

Best-selling Products from Slkor:

Slkor’s popular products include M7 (SMA), AMS1117-3.3 (SOT-223), AMS1117-5.0 (SOT-223), SS34 (SMA), SS36 (SMA), SS8050 (SOT-23), SS8550 (SOT-23), 2N7002 (SOT-23), BAT54C (SOT-23), SD12C (SOD-323), ZMM5V1 (LL-34), LL4148 (LL-34), SMBJ6.5CA (SMB), SMBJ5.0A (SMB), etc. These models and products are selling well in Huaqiangbei specialty stores and major online platforms!

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Kinghelm offers connector products such as SMA semi-coaxial socket KH-SMA-K513-G, IPEX antenna base KH-IPEX-K501-29, and RF RFID cable KH-RFID-20-BQ, which can directly replace similar connectors and plug-in board pins from Murata and Hirose, among others. These products are used in BeiDou GPS navigation, vehicle navigation positioning, GPS BeiDou positioning terminal equipment, and more. Kinghelm’s KH series products are also compatible with Murata, TDK, Taiwan Wancheng, Yongye, ACX, Huake, and can be applied to brands like Apple AirPods, Huawei, Xiaomi, Samsung, and Walkera.

Other sources in Huaqiangbei include stolen goods (also known as rat goods), confiscated goods from customs penalties, surplus goods from ODM factories, and excess inventory from bankrupt companies, further adding to the complexity and diversity of goods available in Huaqiangbei.

With so many counterfeit goods in Huaqiangbei, customers are apprehensive and competitors are anxious. It’s said that “if you haven’t been cheated in Huaqiangbei, you’re not truly a local.” Previously, at Kinghelm, our trading department often encountered counterfeit goods when supplying the BeiDou GPS navigation industry, leading to financial losses for our customers. Despite efforts by government trade and technical supervision departments to combat counterfeiting, many booths or shops often close upon hearing of crackdowns, a phenomenon unique to Huaqiangbei.

Once, I visited Dr. Zhu Junshan in Huaqiangbei, known as one of the most cultured and passionate figures there. He inspects goods under a microscope, although his experience allows him to discern authenticity with confidence. Like Dr. Zhu, many procurement officers in Huaqiangbei have developed sharp eyes for authenticity, each possessing unique skills that contribute to their companies’ competitiveness. Huaqiangbei’s grand lectures include specialized seminars on such skills, reportedly sustaining many professionals in the industry.

Apart from these amateur, experience-based judgments, there are also professional companies in this business. Their scope of operations includes decapsulation, solder analysis, die code extraction, performance testing, failure analysis, and they have built industry databases to provide more professional analysis reports. One such company is Bai Ma Testing, which used to be very popular, and now many large local companies in Huaqiangbei have established similar testing laboratories. Of course, to obtain legally recognized testing conclusions, one must approach professional institutions like the Electronic Fifth Institute in Guangzhou.

The business model of electronic components in Huaqiangbei emerged during China’s period of rapid, diversified demand for electronic components amid the international industrial shift. Counterfeit goods flooding the market have severely damaged the image of Huaqiangbei as “the first street of electronics,” disrupted socio-economic order, and harmed its reputation. With societal progress, increasingly symmetrical market information, and improved legal environments, the hope is to see more enterprises like Tencent, Hainengda, and Jiangbolong emerge from Huaqiangbei—companies with technological strength and significant contributions—to complete the upgrading and iteration of Huaqiangbei’s technology. It is hoped that the government, businesses, and consumers will work together to eliminate counterfeit goods from the market, transforming Huaqiangbei into a shopping paradise for electronic and digital products, and making it the most dazzling city business card in Shenzhen, the Greater Bay Area, China, and even globally!

Let’s support the development and transformation of Huaqiangbei together with Kinghelm and Slkor!

Brief introduction for Mr. Song Shiqiang

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Mr. Song Shiqiang is a researcher at the Private Economy and SME Research Center of the State Council’s Economic Development Center. He is a member of the Electronic Information Expert Database of the China Association for Science and Technology and an expert in Huaqiangbei commercial research. Previously, Mr. Song served as CEO of an international real estate listed company. Currently, he invests in and manages Shenzhen Slkor Micro Semiconductor Co., Ltd. and Shenzhen Kinghelm Electronics Co., Ltd., aiming to establish the “SLKOR” brand and the “Kinghelm” brand. Both companies are recognized as national high-tech enterprises, holding dozens of original invention patents and software copyrights. Slkor is among the rapidly growing semiconductor companies domestically, actively engaged in domestic substitution of electronic components, with a vision to become a leader in the semiconductor industry.

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“Connecting the World with Kinghelm” began with the development of BeiDou GPS antennas. Kinghelm has since expanded its research and production capabilities to include microwave antennas, RF coaxial cables, jumpers, and electrical signal connectors, embracing the era of interconnected intelligence. Mr. Song Shiqiang enjoys widespread recognition, respect, and influence in the semiconductor and BeiDou positioning navigation industries. With years of dedication to the electronics sector, Mr. Song strives to enhance the business environment in Huaqiangbei, aiming for it to serve as a gateway of reform and opening-up and a hallmark of Shenzhen’s economic development.

Under Mr. Song Shiqiang’s leadership, Kinghelm Electronics and Slkor Semiconductor have emerged as successful companies driving Huaqiangbei’s transformation and development. Both Kinghelm and Slkor seamlessly switch between Chinese and English on their websites and offer experiences in 104 languages, aiming to establish themselves as internationally renowned brands in the electronic information and semiconductor industries. They strive to bring glory to Huaqiangbei and contribute to the robust development of China’s electronics and semiconductor sectors.

Media Contact
Company Name: Shenzhen SLKOR Micro Semicon Co., Ltd.
Contact Person: Support
Email: Send Email
Phone: +86 13008868302
Address:2010, Block A, Bairuida Building Vanke City Community Bantian Avenue, Longgang District
City: Shenzhen
Country: China
Website: www.slkoric.com

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