Apple’s modern design and well-guarded brand image has certainly made an impression on the Chinese consumers, and there are already an estimated 2 million black market iPhones in the country. Chinese users are willing to go through the hassle of unlocking the phone, purchasing a flurry of adapters and accessories, and suffering malfunctions and technical problems with no warranty – all to possess one of the most stylish new devices. If the authorized iPhone is a hit, China Unicom could benefit from a boost in customers. Chinese consumers use pre-paid cards instead of signing a one- to two-year contract with mobile service providers, so the cost of switching between providers is minimal. China Unicom would ideally use the iPhone as an incentive to snag some of China Mobile’s most valuable customers. Additionally, China’s expanding middle class will generate new demand for affordable luxuries; the China State Information Center estimates that by 2010, 25% of the Chinese population will earn above 50,000 rmb in annual income.
Despite being a coveted brand in a growing market, Apple still faces potential challenges in launching a legitimate version of the iPhone. While China Unicom is planning to subsidize the devices for mobile subscribers, cheaper copycats continue to exist on the market, satisfying demand from the lower end of iPhone aspirants. And in addition to these fakes, electronics vendors are still bringing in unauthorized iPhones and selling them without the burden of import tariffs; some price-sensitive consumers might decide that a lower price justifies the extra hassle. Despite these cheaper alternatives, would enough upper-middle class Chinese consumers be willing to purchase iPhones through legitimate channels? Even if the demand exists, Apple will need to deal with its relative lack of control over distribution.