'Gray market' for counterfeit gadgets is red hot in China

By Keith B. Richburg
Washington Post Staff Writer
Sunday, August 8, 2010

BEIJING -- Apple's iPhone 4 is not officially for sale yet in China and may not be for several months. Neither is the popular iPad touch-screen tablet.

But never mind. Both devices are readily available at a plethora of Chinese electronics malls in Beijing, Shanghai and all the major cities, in what constitutes China's lucrative telecommunications "gray market" that rivals -- and in some cases, surpasses -- the real thing.

The phones are smuggled from the United States and also from Hong Kong, where both devices are officially on sale. The smuggled iPhone 4 sells in China for $800 to $1,700, depending on the storage size. An iPad with 64 gigabytes goes for about $1,000.

If those prices are too high, Chinese consumers need not fret -- there are plenty of fakes on the market, almost indistinguishable from the real thing, from the touch screen to the apps to the iconic silver logo on the back. They are known here as "Shanzhaiji," which loosely translates as "Mountain Bandit Phones."

China has long raised the ire of U.S. trade officials for the country's copycat culture and often cavalier attitude toward intellectual property rights. It is known as the world's producer of fake Rolexes, DVDs, luxury handbags, designer clothing and just about everything else.

But the global explosion of smartphones and personal devices has taken the fakery to a more sophisticated level, with the "Shanzhaiji" competing with legitimate manufacturers and claiming an increasing share of the telecommunications market. BDA China, a Beijing-based business advisory firm, said illicit phones made up 38 percent of the handset sales in China in 2009.

Care to buy an 'iPhooe'?

Some illicit cellphones offer ever more advanced features that can outpace even the originals.

"It even has some functions the real one doesn't," boasted one phone vendor showing off a Taiwanese-made fake iPhone 4 at Beijing's Fang Shi Communications and Technology Plaza, a hot, crowed, sprawling edifice to the artificial, offering a dizzying array of fake cellphones spanning two stories.

The fake iPhone's special features include a removable battery and a place for two SIM cards, meaning the user can have two phone numbers ring for the same phone.

"You almost can't tell the difference between this and the real thing," said a vendor, nicknamed "Huzi," explaining that he has sold more than 4,000 since the fakes came on the market a few months ago. It says "iPhone" on the back, with the Apple logo. It even uses real iPhone accessories, like the charger and the earphones. The only difference is the price -- about $100, with a little bargaining.

Huzi, the young vendor with orange-tinted spiky hair, said he has never had a customer come back and complain. His shop does offer a full guarantee.

There are plenty of other fakes as well, some with almost no noticeable difference from the real product except, on closer inspection, the name.

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