Smuggled iPads poised to flood China from Hong Kong

By Mark Lee
(c) 2010 Bloomberg News
Friday, July 23, 2010; 12:00 AM

July 23 (Bloomberg) -- For Wang Pingdao, each day Apple Inc. waits to introduce its latest gadgets in China means extra profit from selling imported iPhones and iPads in Beijing.

"The iPad is selling pretty well now," said Wang, a salesman at the Xing Kongjian Digital Market store in Beijing, who has been getting the devices from the U.S.

Wang's business may be about to boom. As Apple begins selling the iPad in Hong Kong today and the iPhone 4 next week, the former British colony will be an important source of supplies of Apple products feeding the so-called gray market in China, said Flora Wu, a handset analyst at BDA China Ltd.

Dealers such as Wang account for almost half of the iPhones sold in China, according to BDA, underscoring how the world's most valuable technology company has lagged behind Nokia Oyj and Lenovo Group Ltd. in marketing its products the world's third- largest economy. Wang plans to sell the low-end version of the iPad for 4,300 yuan ($634) each after buying them in Hong Kong for HK$3,888 ($500).

"It's something they need to address at some point and now is probably the time," said Bertram Lai, head of research at CIMB-GK Securities in Hong Kong. "They need to get it sorted out."

Gray market iPhone sales in China exceeded 400,000 during the first half of the year, compared with the 500,000 sold by China Unicom (Hong Kong) Ltd., the only carrier authorized to offer the device in the country, she said. Chinese dealers also buy from the U.S. and Europe, BDA's Wu said.

Apple, which is expanding iPad sales to Hong Kong, Austria, Belgium, Ireland, Luxembourg, Mexico, the Netherlands, New Zealand and Singapore today, hasn't set a date for the debut of the tablet computer or the iPhone 4 in China, spokeswoman Jill Tan said. Gray market sales of Apple products in China are difficult to track, she said.

Hong Kong operates as a semi-autonomous region of china, with its own laws and government, under the "one country, two systems" formula agreed when the U.K. returned the city to Chinese rule in 1997.

Globally, Apple may ship 12.9 million iPads this year, according to estimates by ISuppli Corp. this week. The research firm raised its projections by more than 80 percent after the product sold out in U.S. stores.

Gray market demand may be pushing up sales in Hong Kong. IPhone shipments jumped almost 10-fold during the first three months of the year, according to IDC. Kathy Sin, a Hong Kong- based analyst at the research firm, said she "can't rule out" demand was boosted by demand from China.

"Apple isn't focusing very heavily on China and the company is still building its sales channels and partnerships, so it's been slow to launch the latest products," said Sandy Shen, an analyst at Gartner Inc. in Shanghai.

By comparison, Nokia's retail network in China comprises more than 100,000 stores, while Lenovo has more than 10,000 in the country, according to spokespeople at the companies.

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