In China’s huge yet semi-walled smartphone market, a long-simmering feud between handset makers and software developers is finally boiling over.
For years, domestic Android phone brands have leveraged their control of devices and app distribution to tilt the playing field in their favor. They’ve built their own app stores and services on top of Android – effectively replicating Apple’s closed ecosystem model – and positioned themselves as gatekeepers between developers and China’s hundreds of millions of users. This entrenched hardware-versus-software conflict stayed largely out of the spotlight, but now Chinese regulators are stepping in, signaling that the era of unchecked platform power may be nearing its end.
Hardware-Software Feud: From “Hardcore Alliance” to 50% App Tax
As Android’s global services (like Google Play) never officially took root in China, domestic manufacturers filled the void with their own app marketplaces, pre-installed apps, and custom interfaces. This arrangement gave phonemakers leverage well beyond the hardware itself. Control over operating systems – from default apps and permissions to distribution channels – became a powerful commercial tool. Accessing China’s massive Android user base often meant software firms had to accept onerous terms set by the phone makers. Over time, that leverage solidified into what developers describe as a de facto “hardcore alliance” of top phonemakers jointly dictating app market economics.
One outcome was sky-high commission rates. Domestic Android app stores steadily drove up their revenue share on app sales and in-app purchases, in some cases demanding 50% of transaction value – far above the 30% cut that Apple and Google take globally. (NetEase founder Ding Lei publicly blasted this “Android tax” in early 2021, arguing there was “no reason” Chinese channels should take 50% when overseas platforms take 30%.) At the same time, developers accused handset makers of using technical tactics to favor their own services and hobble rivals’ apps. Complaints ranged from traffic hijacking (diverting user clicks into the manufacturer’s apps) and forced redirects, to deliberate incompatibility errors that made third-party apps difficult or impossible to use. In essence, China’s Android giants turned the smartphone into a gatekeeper walled garden – one that they collectively profited from, at developers’ expense.
The consequences have been tangible. NetEase, one of China’s biggest game publishers, has openly rebelled against these practices. After voicing discontent with app store commissions, NetEase began withdrawing its hit games from certain Android app stores in protest. Since late 2024 it has pulled popular titles like Onmyoji and Minecraft from Oppo’s app market – even removing some games from Huawei and Vivo stores – forcing players onto NetEase’s own channels. Tencent made a similar move this year: in June, it yanked the highly anticipated Dungeon & Fighter Mobile off Huawei, Oppo and Vivo’s stores after revenue-sharing talks broke down. (Alibaba’s gaming unit also pulled two major titles from Vivo’s platform around the same time.) These acts of defiance by industry giants underscore how contentious the 50% cut and restrictive policies had become. Smaller studios, however, have little choice but to comply – few can afford to forego the visibility that preloaded app stores provide. With truly independent app marketplaces now squeezed to under 10% of the market, developers who refuse the dominant channels risk disappearing from Chinese users’ screens.
In November 2023, third-party app store TapTap publicly accused a major smartphone brand of using built-in ‘security protection’ features to block users from downloading games from third-party marketplaces, effectively forcing developers to accept high revenue-sharing terms. TapTap also said the brand deliberately introduced excessive friction when users attempted to download or install non-partner games, directly harming user experience.
Phone manufacturers haven’t relied only on high commissions to lock in their advantage. They’ve also engineered their systems to actively discourage users from downloading apps via any outside source. Attempts to install an app from a third-party website or alternative app store trigger a gauntlet of warnings and roadblocks: the phone will flash security alerts (e.g. “unverified source” or “potential risk”) and prompt the user to confirm multiple times, even requiring passwords or fingerprint scans. In some cases a “Find similar apps” button appears, which funnels the user back to the phone’s own app store. Meanwhile, installing that very same app through the official store is seamless. It’s a psychological and technical barrier explicitly designed to deter deviation. This friction works – surveys show roughly 65% of users abandon the installation if faced with such warnings. By exploiting their control of the operating system under the pretext of “security,” phonemakers have effectively corralled users into staying within their walled gardens, to the detriment of third-party app platforms and consumer choice.
Regulators Step In: New Rules of Fair Play
It was only a matter of time before Beijing’s regulators took notice of these unfair tactics. In late November, China’s State Administration for Market Regulation (SAMR) convened major smartphone companies in Shenzhen to issue compliance guidance under the Anti-Unfair Competition Law. The meeting – notable for its stern tone – called out specific behaviors that officials deemed problematic. Rather than speaking in generalities, SAMR officials explicitly denounced “irrational competition” in the mobile sector, highlighting traffic hijacking, forced redirects, and malicious incompatibility as practices that disrupt market order and harm consumers’ rights. In regulatory terms, Beijing is drawing a bright red line: tactics long used by Chinese Android vendors to sideline competitors are now being framed as illegal anti-competitive conduct, not acceptable industry norms.
Crucially, the regulators are focusing on conduct over market share. Unlike a traditional monopoly scenario, China’s Android ecosystem is fragmented among several big players rather than dominated by one. SAMR’s guidance makes clear that even without a single firm controlling the market, certain exclusionary behaviors can still violate the law. In March, China’s Supreme Court underscored this point by issuing a judicial interpretation that using technical means to obstruct a rival’s software or services constitutes unfair competition, regardless of the offender’s size. The message: platform power comes with responsibility, and abuse of that power won’t be excused simply because no one company has a 90% market share. Regulators instructed phone makers to audit their software practices, strengthen internal compliance, and align with the newly revised anti-unfair competition rules. In other words, behavior that once flew under the radar must now be checked against China’s competition law – or risk enforcement.
This intervention by SAMR also aligns with a broader global shift in how regulators view Big Tech gatekeepers. Around the world, authorities are reining in platform operators’ control over app ecosystems. The European Union’s Digital Markets Act (DMA), for example, imposes sweeping obligations on tech “gatekeepers” to open up their systems. South Korea now bans app store operators from forcing developers to use in-house payment systems, targeting the kind of practices that gave rise to its own “app store law” in 2021. And in the United States, ongoing antitrust lawsuits continue to challenge whether companies like Apple and Google can justify closed app distribution on security or user-experience grounds. Courts, too, are casting a skeptical eye. In a recent Australian case, a federal judge rejected the notion that having a single app store is necessary for security, noting that as long as safety standards are uniformly applied, openness and safety are not mutually exclusive. The court pointed out that Apple provided no solid evidence that allowing multiple app stores would inevitably create a “security disaster,” undercutting a key argument often used to defend closed ecosystems. This international context bolsters SAMR’s stance – it suggests that China’s regulators are moving in step with a global rethinking of how much control device and platform owners should wield.
New Boundaries for China’s Tech Giants – and What’s Next
China’s mobile ecosystem may be unique, but the implications of SAMR’s move are clear: the country’s smartphone heavyweights will have to adjust. Tactics that Chinese handset makers long treated as standard business practice – from aggressive app store commissions to deeply embedded software hurdles – are now explicitly on notice. By naming and shaming these behaviors, regulators have effectively turned them into compliance risks. For the likes of Huawei, Xiaomi, Oppo, Vivo and others, this likely means re-evaluating their playbooks. App stores and pre-loaded services have been lucrative, especially with games yielding up to 50% commission, but those revenue models may need to be tempered under stricter scrutiny. The immediate guidance from SAMR didn’t come with fines or formal penalties attached, but it fired a warning shot: if the “hardcore alliance” continues to flout fair competition principles, stronger enforcement could follow. Notably, SAMR has shown it’s willing to get tough – in recent years it has levied major antitrust fines on domestic tech firms like Alibaba and Meituan for abusing market position.
For software developers and content providers, the regulator’s intervention is a hopeful sign – albeit not a cure-all. The new guidance by itself won’t dismantle the dominance of the built-in app stores overnight; the mobile giants’ grip on distribution remains firm for now. However, developers finally have the weight of official policy on their side of the argument. Long-standing grievances about traffic blocking or “security” pop-ups steering users away from outside apps have now been validated as legitimate competition concerns in the eyes of the law. This could embolden developers to lodge complaints or pursue legal action if such practices persist, knowing there is clear legal language and political will to back them up. In the medium term, we may also see alternate app channels – from third-party app stores to mini-program platforms – gain more traction if regulators ensure they’re not unfairly hindered. The mere fact that authorities are watching this space more closely may prompt the smartphone makers to voluntarily ease some restrictions to avoid regulatory wrath.
Ultimately, what’s at stake in this clash is not just a few percentage points of app commission, but the future structure of China’s digital marketplace. The hardware-software tug-of-war in China’s mobile sector will not resolve overnight – the incentives (and profits) that drive manufacturers to tighten their ecosystems remain powerful. Yet the ground rules are undeniably shifting. Regulators have made it clear that unchecked, system-level leverage by hardware firms is no longer tenable. The coming months will test how sincerely China’s phonemakers heed this call. Will they embrace a more open approach, or quietly find new ways to preserve their walled gardens? The answer will help determine whether China’s next digital decade is defined by a closed “garden” controlled by a few gatekeepers, or a more open environment where all apps and developers can compete on equal footing. For now, one thing is certain: the rules of engagement in China’s mobile industry have been redrawn, and everyone – from phonemakers to app developers – is on notice.
