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Bento writes An article wherein it is explained why everything written so far about Apple’s iPhone launch in China is beside the point.

Apple is not selling iPhones in China because it wants to sell iPhones in China, but because it wants to sell iPhones to the Chinese. That’s a big difference. I’ll explain.

The Chinese have long had access to iPhones. They are for sale at stalls in every cybermall and market in every Chinese city, and come in two varieties: The most expensive ones (at around 6000 RMB in Shanghai for a 16GB 3GS, or 880 USD, depending on your haggling skills) come directly from Hong Kong, where the factory-unlocked model is available from the Apple store for around 4800 RMB. That’s a nice arbitrage play by the stall owner, and everyone is happy. The cheaper model, at around 5000 RMB for a 16GB 3GS, was originally bought locked in the US or Europe, and has been unlocked by the stall owner’s hacker-genius cousin using 3rd-party software. This kind of iPhone is cheaper, because you are on your own when it comes to upgrades and iTunes compatibility.

The distribution model is extensive and robust, and in fact most Chinese buy their mobile phones from stalls like this. There are no iPhone shortages, as prices fluctuate to meet demand. The received wisdom is that around 2 million iPhones are in the Chinese wild; I’ve personally seen a good many of them here in Shanghai, where they are much in evidence among the eliterati. Still, this is a minuscule portion of the 700 million odd phones in use in China, of which a small but growing portion is smartphones.

Unfortunately, an ill-conceived Chinese law forbids selling mobile phones containing wifi functionality (unless it is the wifi variety developed in China that nobody uses) so if Apple wants to sell iPhones in China, it has to first cripple them.

Why anyone would buy a wifiless iPhone beats me, especially if it is more expensive than the arbitraged unlocked Hong Kong model. Apple seems to think the same thing, because it is not revenue-sharing with China Unicom, the local vendor, but selling the iPhones outright to them. It is up to China Unicom to flog them in China.

And that’s what China Unicom is trying to do. China Unicom stores all have iPhone banners up; I’ve passed several China Unicom road shows stopping by Shanghai extolling the iPhone. The iPhone is being talked about widely. But so is the fact that the China Unicom iPhone is crippled — the Chinese are sophisticated consumers; forget this at your own peril.

The upshot: anecdotal reports tell of aftermarket prices increasing for Hong Kong iPhones these past few weeks, as demand increased. Clearly, the advertising is working, even if China Unicom’s sales of wifiless iPhones are anaemic.

There is a certain poetic justice to the whole spectacle: China Unicom, a state-owned company, forced to sell inferior iPhones in a porous market due to stupid laws promulgated by the Chinese state, spending on advertising that mainly benefits the aftermarket for Hong Kong iPhones.

It’s now in China Unicom’s interests to have the anti-wifi law changed, so that they can sell a larger portion of the iPhones ending up in Chinese hands. That kind of incentive makes me optimistic. Apple has already cracked the Chinese market for wifi-enabled phones — via Hong Kong. Now China Unicom needs to do the same — by getting its owner to change the law.

Comments

[blipvert.livejournal.com]

That rather has the old familiar scent of power in the hands of the people. What's going on here?

[quezz.livejournal.com]

This is true of ALL smartphones in China. As long as HK is allowed to hold on to its free market, China can't do jack shit about the distribution of these phones. As a second benefit, some of them will come with software that is banned in China for various reasons, and this couldn't please me more. The government is hoping that enough people are stupid enough to obey...but those folks don't have the money to buy smartphones.

*smells justice, and it is sweet indeed!*

[quezz.livejournal.com]

What has gone on in China for thousands of years. The government says stuff...and how much people listen depends on how well the Mandate of Heaven is holding up.

I think the ceiling's getting a little LOW.

[stolen-tea.livejournal.com]

That is beautiful economic judo. Bravo Apple!

Popular subject these days

[sea-bound.livejournal.com]

http://www.forbes.com/2009/11/06/iphone-apple-china-leadership-managing-failure.html

[whitebird.livejournal.com]

Ah, this is a very interesting take!