Although budget Chinese phone maker Xiaomi Corp announced the lowest priced 5G phone on the market on Tuesday, chief executive Lei Jun was still not happy.

The Beijing-based company introduced the Xiaomi 9 Pro 5G, starting at 3,699 yuan (US$520) for the basic handset, with the top end model selling for 4,299 yuan, higher than Lei Jun wanted even with substantial subsidies.

“We initially planned to price the Xiaomi 9 Pro 5G at 3,999 yuan, but we wanted to subsidise consumers to let more people have a chance to use 5G phones,” Lei said during the launch event.

Xiaomi's new 5G phone is the cheapest among its competitors in China. (Picture: Xiaomi)

Lei said R&D costs for the next generation phones were “huge” and selling them at the same prices at 4G models was “not sustainable” and would result in “a huge loss” for the company.

“We set the starting prices at 3,699 yuan for the first 5G smartphones Xiaomi launched in China, and hope the consumers could feel our sincerity.”

Xiaomi also showed off a concept phone called Mix Alpha which features a wraparound screen covering the front and back of the device. Expected to go on sale in December at 19,999 yuan, more than 1,000 engineers were involved in its design at a total cost of 500 million yuan, according to Lei.

Since listing on the Hong Kong stock exchange in 2018, Xiaomi has been trying to shake off the image of a cheap phone maker, moving towards premium phones with higher margins, to please investors.

The introduction of its 5G phones also shows that as with any new tech, the starting price is usually high until consumer demand kicks in.

With the notable exception of Apple – its new iPhone 11 series does not support 5G – most smartphone brands have been launching 5G-enabled handsets ready for the global 5G market which Gartner forecasts will be worth US$4.2 billion by the end of 2020, driven by vast infrastructure investment from broadband providers.

Unlike the current generation of mature 4G phones which have plenty of chipset options, there are currently only two 5G offerings. Qualcomm’s Snapdragon 855 chipset is available on the open market, while Huawei Technologies’ Kirin device is produced in-house exclusively for Huawei phones.

Production costs for 5G phones, which have only started to appear on the market this year, have increased by more than 1,000 yuan per unit, Lei said in his official Weibo account on September 22, two days ahead of the official launch of the new phones.

“The pricing of the Xiaomi 9 Pro will be much more expensive than that of Xiaomi 9. I hope everyone understands,” Lei said in his post on Sunday.

Still, Xiaomi’s pricing for its new 5G phone is the lowest among all major smartphone vendors with similar offerings. Vivo launched its Nex 3 5G phones in China earlier this month with a starting price of 5,698 yuan, while its offshoot brand iQoo announced a 3,798 yuan 5G model last month. In comparison, Samsung Electronics’ flagship Galaxy Note10+ 5G handset costs 7,999 yuan.

China’s leading smartphone brand Huawei launched the 5G model in its Mate 30 series in Germany last week, pricing the next generation device at 1,199 euro (US$1,318) for the international market. Pricing has yet to be determined for the domestic Chinese market.

Oppo, one of the top three vendors in China, did not offer a 5G version of its Reno 2 handset announced at the end of August, citing the immature 5G market.

The big three Chinese telecom operators, China Mobile, China Telecom and China Unicom, have yet to officially release commercial 5G data plans even though they were granted commercial 5G licences earlier this year.

However, local media reports suggest that 5G data plans will be officially available on the Chinese mainland in the near future.

Taiwan-based MediaTek, a rival to Qualcomm, expects the roll-out of the next-generation network to drive shipments of its 5G smartphone chips when they become available in the first quarter of 2020, company president Joe Chen said in an interview in Shenzhen last month.

MediaTek wants to help vendors bring the retail price of 5G phones to below 2,000 yuan (US$283) in the second half next year, according to Chen.

In an earlier interview, Jian Qin, executive vice president of China Mobile, said he expects prices of 5G phones could fall to between 1,000 and 2,000 yuan next year as the world’s largest telecom operator in terms of subscribers works with smartphone vendors to provide affordable handsets in the coming months.