Fake handsets from China are posing an increasing threat to multinational brands such as Nokia as they flood emerging markets, according to a report.

Total shipments are set to reach the equivalent of 13 per cent of the legitimate global mobile phone market this year, the electronics research group iSuppli said.

China's grey market wireless handset production is expected to amount to 145m units in 2009, up a “stunning 44 per cent from 101m in 2008”, said iSuppli.

The figures shed light on a little-researched sector that has been booming in China during the past five years. Thousands of small workshops, mostly in Shenzhen, have been churning out cheap copies of branded handsets and “improved” models with creative new features such as powerful speakers or flashlights.

The rise of the whitebox handset makers – typically tiny assembly shops with no previous history in electronics manufacturing and an average headcount of less than 10 – was helped by Mediatek, the Taiwanese chip design house, which offered turnkey software products alongside its mobile chips.

But while the cheap devices conquered China's rural and migrant worker markets from 2005, growth is now slowing as domestic branded handset makers such as Lenovo Mobile, TCL and Tianyu have started hitting back with cheaper phones that carry some of the features invented by the copiers.

Kevin Wang, director of China Research for iSuppli. said: “Margins in the grey market are being squeezed so producers have started exporting aggressively.”

The iSuppli report estimates that grey market handset exports will jump to 110m units from 60m units last year.

“Although we are seeing some devices appearing in some western European countries, most of the exports are going to emerging markets, with India, Russia and Brazil being the focus,” Mr Wang said.

“This will not hurt the supply chain – they benefit either way. But it will be most damaging for Nokia.”

According to iSuppli, the grey market could peak at 192m units in 2012 as global branded handset makers are expected to respond with new models in emerging markets.

How the sector fares beyond that depends mainly on whether Mediatek can continue its supporting role after third- generation mobile services become the mainstream.

The company is ready to make 3G chips but still needs an agreement with Qualcomm on using its 3G-related patents.