BEIJING — The store clerk polished the iPhone 4 as though it were a diamond. Then he handed it to Liu Jia.
“You have to have it. It’s like religion,” said Liu, a 29-year-old public-relations manager. “I don’t think a lot of people understand the essence of the iPhone, but it looks cool and it makes you a star in front of your friends.”
Apple infatuation has arrived in the land of 800 million-plus mobile phone users.
The recent launch of the iPhone 4 on mainland China created a frenzy, with fighting breaking out among shoppers at Apple’s flagship store, located in a high-end shopping and bar area of Beijing called Sanlitun. The store had to be closed to restore order.
Shortly after the latest version of the iPhone officially went on sale Sept. 25, Apple’s carrier partner, China Unicom, announced it had received 200,000 pre-orders, even though the country is already swamped with “gray market” iPhone 4s brought in from Hong Kong and the United States.
Compared with Americans and consumers in other developing countries, relatively few Chinese lined up for Apple products. But the intensity of those who do underscores the importance high-end products have for newly wealthy Chinese, many of whom are willing to pay above suggested retail prices to get their hands on devices like the iPhone 4 before others do.
Cupertino, Calif.-based Apple, after years of effectively ignoring the country with the world’s largest number of mobile phone and Internet users, now is aggressively courting Chinese consumers. Products like the iPhone and iPad are hitting the Chinese market faster than ever before - the iPhone 4 went on sale just about three months after its U.S. release, while it took more than two years between the debut of the first version of the iPhone and its rollout in China.
And the recent opening of the first Apple Shanghai store, featuring a 40-foot high glass cylinder, is part of a new retail strategy to open 25 stores in China by the end of next year, up from the four that now exist - two in Beijing and two in Shanghai.
During the company’s second-quarter conference call with analysts, Chief Operating Officer Tim Cook said revenue for China, Hong Kong and Taiwan was nearly $1.3 billion - more than a 200 percent jump from the same period a year ago. Piper Jaffray analyst Gene Munster estimates China represents about 5 percent of the company’s sales and expects that to double sometime between 2015 and 2020.
Apple would not comment on its China strategy.
“It’s critical that Apple is in China,” Needham & Co. analyst Charles Wolf said. “There is a strong move toward conspicuous consumption, and that means there is a strong move to buy Apple products.”
The iPhone conveys status in a status-conscious culture.
“It’s pretty,” said Zhang Ya Nan, a college sophomore who visited an Apple reseller just to touch an iPhone, which she planned on buying with help from her mother. “I don’t want to wait too long.”
It’s not uncommon for Chinese to spend two months’ salary - or more - on an iPhone, which costs about $750 for a 16 gigabyte model without a China Unicom contract, though the relative scarcity of the devices has driven the price up among scalpers and resellers. Consumers can also get a 16 GB iPhone 4 with a two-year contract that costs about $880.
Some Chinese don’t even use the device as a phone because it’s too expensive for them to make calls; instead, it’s used to send text messages, said Shaun Rein, managing director of Shanghai-based China Market Research Group.
“They use the iPhone as a status symbol to show their sophistication in the world, even though they can’t afford it,” he said.
Apple’s lure goes beyond the iPhone. Wen Diren, along with his wife, Shi Guoling, visited the Sunlitun Apple store this month to check out the iPad. “I just came to try it out, and I fell in love with it,” he said, cradling the new 16 gigabyte iPad he bought for a little less than $600, about $100 more than what the device sells for in the United States.
Like all infatuations, though, there is a risk the attraction is temporary - or that obstacles could impede a long-term relationship.
“Apple hasn’t learned how to tackle markets that have very different characteristics from the United States,” Shanghai-based Gartner Inc. analyst Sandy Shen said.
Among the difficulties Apple faces in China, for example, are competing with easily made iPad and iPhone knockoffs and marketing its high-priced products to a population that has a much lower income than consumers in more developed countries like the United States.
“There are a lot of shanzhai,” or fake mobile phones, said Jixin Huang, investment manager with expertise in China’s mobile market at Innovation Works, an early stage start-up venture fund. “They are everywhere.”
Apple will also face strong competition from phones running on Google’s Android mobile operating system, whose aggregate market share is already higher than that of the iPhone in China, Shen said.
In China, Apple must contend with a government that does not hesitate to dictate its wishes to foreign companies, said Munster, the Piper Jaffray analyst. When the iPhone first came to China, for instance, government officials mandated that the device could not be equipped with Wi-Fi. That rule has now changed.
“Apple has great products the whole world wants,” said Rein with the China Market Research Group. “But [Chief Executive Officer] Steve Jobs looks at America too much. The company is too Americentric. This is a complaint you hear throughout the world.”
Business, Pages 21 on 10/25/2010