China's smartphone market kicked off 2026 looking pretty rough. January sales dropped 23% year-over-year, thanks to an awkward timing mismatch and the lingering effects of last year's government subsidy bonanza, according to Counterpoint Research.

The Subsidy Hangover Effect

Here's what happened: In January 2025, the Chinese government launched a subsidy program on January 20th that perfectly overlapped with Lunar New Year promotions. That combination supercharged demand and pulled forward a lot of purchases that might otherwise have happened this year.

Analyst Ivan Lam points out that this created a brutally high comparison base for 2026. Add in lower subsidy intensity this year and generally cautious consumers, and you get a market that's struggling to find its footing. Most Chinese smartphone brands posted double-digit declines as a result.

Huawei Holds the Lead Despite Weakness

Even with sales down 27% year-over-year, Huawei managed to claim the top spot with a 19% market share. That's not exactly a victory lap, but it shows the company's dominant position in the market.

The Nova series disappointed compared to last year's performance, while the base Mate 80 model became Huawei's best-selling device in January. To counteract the slowdown, Huawei went all-in on trade-in promotions during the subsidy period.

The strategy was pretty aggressive: Huawei offered the highest evaluated trade-in prices across recycling platforms and tacked on a 20% official upgrade subsidy for new purchases. According to Lam, these moves helped stabilize the company's overall performance amid the broader market decline.

Apple Breaks the Pattern

Apple Inc. (AAPL) was the outlier everyone's talking about. It was the only major brand to post year-over-year growth in January, reaching its highest January market share in five years. The iPhone 17 series has been driving sustained demand, and there's a key wrinkle that's helping: the base iPhone 17 now qualifies for government subsidies.

That subsidy eligibility boosted the value proposition considerably, contributing to a 9% month-over-month sales increase. Apple has kept price cuts relatively modest so far, which Lam notes leaves the company room for further adjustments before its next-generation launch.

While other brands haven't fully ramped up their promotional efforts yet, overall demand remains soft across the market. Counterpoint expects things to pick up in February, supported by seasonal purchasing around Lunar New Year, which is traditionally one of China's peak smartphone sales periods.

AAPL Price Action: Apple shares were down 0.95% at $259.24 at the time of publication on Friday.