In south China's Shenzhen city, known as the "birthplace of counterfeit phones", shops with "for rent" signs can be seen everywhere, the China Daily reported Monday.
Although the city has long been known as one of the country's top sellers of electronic products, government data indicates that more than 3,500 shops, most of which were mobile phone dealers, have closed and retreated from the market.
This year's Canton Fair, the country's largest small commodities expo held in Guangzhou, featured a small number of counterfeit phones, an "unthinkable occurrence in previous years".
Industry experts said manufacturers of counterfeit phone do not have the technological know-how to compete with global brands like Apple and Samsung.
However, domestic brands have made breakthroughs that have allowed them to offer inexpensive smartphones, thus cutting into the counterfeit phone market.
Among the 10 biggest phone manufacturers in China last year, domestic brands ZTE, Huawei and TCL were ranked third, fifth and ninth respectively, in terms of smartphone sales.
Domestic smartphones cost less than 1,000 yuan ($160).
Tang Ruijin, director of the Shenzhen Federation of Mobile Communication, said counterfeit manufacturers have retreated to underdeveloped overseas markets like southeast Asia, Latin America and Africa.
At this year's Mobile World Congress, Huawei unveiled a quad-core mobile phone processor. Huawei is one of few companies that develops its own computer chips, while many foreign brands still use Intel chips.