SHENZHEN, China (CNN) -- The white BMW Mr. Liu drives around this humid coastal city in southern China may be real, but the spiffy little black smart phone he carries with him is definitely fake.



Phone clones: China's "bandit" mobile phone market is huge.



"But it has Bluetooth, GPS, Wi-Fi, FM radio, a digital video camera, hundreds of games, even a voice recorder," says Liu. "And I invested over $500,000 to make it."



Liu, a 31-year-old who studied fine arts in college and designs cigarette cartons on the side, is one of countless thousands here who've earned big bucks manufacturing "gray market" mobile phones, millions of which are not only being sold across China but also exported to dozens of developing countries in Africa, Latin America, the Middle East and other regions around the world.



"They are everywhere," said Karl Weaver, a wireless evangelist and mobile device specialist for the Chinese handset ecosystem. "You can find them in major department stores and malls, in back alleys and in underground markets. Everyone is selling them. It is really very entrepreneurial."



In 2008, an estimated 150 million, or 20 percent, of the 750 million handsets produced in China were either counterfeit or off-brand phones, according to CCID Consulting, a market research firm based in Beijing. Of those, over 51 million were sold in China while the remainder were sent to foreign markets.



Known here as "shanzhai ji", or bandit phones, China's gray market handset industry was virtually non-existent just a few years ago. While a handful of illegal companies produced black market mobiles, they often were of poor quality mainly because the technology needed to make them was hard to come by and even harder to master.



This all changed in 2005 when Mediatek, a microchip design company from Taiwan, developed what experts call a turnkey solution -- a platform that integrated many complex mobile phone software systems onto a single chip. This made it much easier and cheaper to build handsets and churn out new models at astounding speeds.



"[Mediatek] basically commoditized the entire market," said Jonathan Li, founder of Shanghai-based technology design studio Asentio Design. "They made it really simple and really cheap to make your own phone. Almost anybody could do it."



The shanzhai business got another boost a couple of years later when the Chinese government relaxed regulations limiting the number of companies that could manufacture handsets, lowering the entry barrier for hundreds of entrepreneurs eager to have a piece of the world's biggest mobile phone market.



"It is so easy to do because this whole ecosystem is in China," said Weaver. "It isn't so complex for a guy to figure out by watching how the global supply chain works in the mobile handset space to do his own thing."



Small operations, big rewards



By 2008, an estimated 3,000 to 4,000 shanzhai businesses had emerged, many with fewer than a dozen employees operating in offices sometimes comprised only of a back bedroom in a small apartment or basement of a private home. Some blatantly copy major brands, producing knock-offs with slight twists in their names, others come up with special makes of their own.



Either way, the shanzhai phenomenon has not gone unnoticed by legitimate handset manufacturers. The gray market phones, which typically sell for around $100, have already driven down the prices of brand name mobiles and are beginning to take away their market share, too.



"You cannot compete with them. You can't," said an employee of Chinese telecom equipment maker Huawei Technologies who spoke on the condition of anonymity. "It is almost impossible to make a profit [from handsets] now because of shanzhai."



Some manufacturers, like Nokia, say they are working with the Chinese government to crackdown on the counterfeiting companies as well as raise awareness about the potential dangers of the fake phones, some of which have had exploding batteries or expose consumers to abnormal amounts of radiation.



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SHENZHEN , China ( CNN ) -- The white BMW Mr. Liu drives around this humid coastal city in southern China may be real , but the spiffy little black smart phone he carries with him is definitely fake . Phone clones : China 's " bandit " mobile phone market is huge . " But it has Bluetooth , GPS , Wi - Fi , FM radio , a digital video camera , hundreds of games , even a voice recorder , " says Liu . " And I invested over $ 500,000 to make it . " Liu , a 31-year - old who studied fine arts in college and designs cigarette cartons on the side , is one of countless thousands here who 've earned big bucks manufacturing " gray market " mobile phones , millions of which are not only being sold across China but also exported to dozens of developing countries in Africa , Latin America , the Middle East and other regions around the world . " They are everywhere , " said Karl Weaver , a wireless evangelist and mobile device specialist for the Chinese handset ecosystem . " You can find them in major department stores and malls , in back alleys and in underground markets . Everyone is selling them . It is really very entrepreneurial . " In 2008 , an estimated 150 million , or 20 percent , of the 750 million handsets produced in China were either counterfeit or off - brand phones , according to CCID Consulting , a market research firm based in Beijing . Of those , over 51 million were sold in China while the remainder were sent to foreign markets . Known here as " shanzhai ji " , or bandit phones , China 's gray market handset industry was virtually non - existent just a few years ago . While a handful of illegal companies produced black market mobiles , they often were of poor quality mainly because the technology needed to make them was hard to come by and even harder to master . This all changed in 2005 when Mediatek , a microchip design company from Taiwan , developed what experts call a turnkey solution -- a platform that integrated many complex mobile phone software systems onto a single chip . This made it much easier and cheaper to build handsets and churn out new models at astounding speeds . " [ Mediatek ] basically commoditized the entire market , " said Jonathan Li , founder of Shanghai - based technology design studio Asentio Design . " They made it really simple and really cheap to make your own phone . Almost anybody could do it . " The shanzhai business got another boost a couple of years later when the Chinese government relaxed regulations limiting the number of companies that could manufacture handsets , lowering the entry barrier for hundreds of entrepreneurs eager to have a piece of the world 's biggest mobile phone market . " It is so easy to do because this whole ecosystem is in China , " said Weaver . " It is n't so complex for a guy to figure out by watching how the global supply chain works in the mobile handset space to do his own thing . " Small operations , big rewards By 2008 , an estimated 3,000 to 4,000 shanzhai businesses had emerged , many with fewer than a dozen employees operating in offices sometimes comprised only of a back bedroom in a small apartment or basement of a private home . Some blatantly copy major brands , producing knock - offs with slight twists in their names , others come up with special makes of their own . Either way , the shanzhai phenomenon has not gone unnoticed by legitimate handset manufacturers . The gray market phones , which typically sell for around $ 100 , have already driven down the prices of brand name mobiles and are beginning to take away their market share , too . " You can not compete with them . You ca n't , " said an employee of Chinese telecom equipment maker Huawei Technologies who spoke on the condition of anonymity . " It is almost impossible to make a profit [ from handsets ] now because of shanzhai . " Some manufacturers , like Nokia , say they are working with the Chinese government to crackdown on the counterfeiting companies as well as raise awareness about the potential dangers of the fake phones , some of which have had exploding batteries or expose consumers to abnormal amounts of radiation . " We have
how many are thought to be fake
how many are thought to be fake
an estimated 150 million, or 20 percent, of the 750 million handsets produced in China were either counterfeit or off-brand phones,
an estimated 150 million, or 20 percent, of the 750 million handsets produced in China were either counterfeit or off-brand phones,