China is so crazy about Apple products that in one city alone there are at least five “fake” Apple stores. Concerned by the news, China’s authorities have now shuttered two of them for code violations. But with many more official resellers opening across the nation soon, and Apple rumored to be in talks with the world’s biggest cell network, could Chinese consumers actually be Apple’s ticket to trillion-dollar status?
Apple is now planning a third Shanghai store, which will be even larger than its two already-iconic flagship stores in the city–these only opened in the middle of 2010, but they’re so popular and crowded Apple’s decided the market is ripe enough to support another store. These two stores and its other two official outlets in Berlin are the ones with the most foot traffic among Apple’s worldwide sales effort, which will be eye-popping news to visitors to Apple’s crowded Fifth Avenue store and its Regent Street outlet in London.
So big is the demand in China that trafficking of Apple goods from Hong Kong to mainland China is now a serious business. As a Reuters report points out, an iPad 2 costs the equivalent of $499 in Hong Kong, but $572 on the mainland–enough of a margin for unauthorized resellers to acquire supplies from smuggling rings that use student couriers as “mules” for electronic gear, not drugs.
Apple’s biggest Chinese manufacturing partner, Foxconn, is also about to open up to 500 official reseller stores in China. Offering Apple gear at officially sanctioned prices, and with supplies presumably coming directly from its own production line, Foxconn is giving itself an added incentive to keep up with global demand of Apple’s products–something that’s been an issue with the iPad 2’s low yields.
But who’s buying Apple gear in China? It’s not exactly famous for personal wealth on a mass scale. That’s actually changing, though–China’s got a serious income gap developing between rich and poor, but those who have money have seen their per-capita wages rise 13% to $935 annually in the countryside, and 10% to $2,965 a year in cities. This makes Apple products proportionally much more expensive than in Europe or the U.S., but as status symbols they’re still highly desired goods. And Apple may have a plan to attack this market more head-on: We think the iPhone 5 will come with a much cheaper pre-paid-market version of the iPhone, which may cost as little as $350 off-contract. We know that Apple is in talks with China Mobile, which is the world’s biggest mobile provider, and from previous experience we know Apple’s happy to adjust its wireless tech to work with China’s proprietary 3G. With booming sales of Android phones reported recently, the highly coveted iPhone could also rocket off the shelves when China Mobile finally inks a deal.
This could all result in some serious additional income for Apple over the next year. And with emerging evidence the Chinese authorities are clamping down on a national penchant for pirated content, it’s even possible that Apple’s iTunes system will add incrementally to this too. If so, the revenues from China over the next 12 months or so could actually push Apple’s share price further upward, toward the mythical trillion-dollar status. It doesn’t hurt that the company is also pushing into the enterprise market, and there are still rumors it wants to transform the TV industry.