Analyst: There's a market of four to five million iPhones a year in China

Mainland Chinese need a visa to go to HK (or Macau).
There are still border controls between the two "countries".
Still customs controls between the two "countries".

Locals of both countries, er sorry locations cannot freely move between the two.

Effectively its a separate country to China, despite the wordplay.

Correct me if I'm wrong, but Apple has already been selling iPhones unlocked in Hong Kong (officially unlocked straight from Hong Kong Apple store, not "gray" market), and Hong Kong is part of China.

Should be easy for the Chinese to transition since they live in a LOCKED DOWN environment where the government (in this case apple) has complete control of everything.

I think they hit somewhere in the region of a few million new iPhones sold last year in China, so 4-5 million isn't unfeasible. A check with the main provider China Mobile shows the current state of affairs. While they don't release official figures, they know that there is a large existing user base in the cities.

So, sure, there's a market for iPhones in China.

Unfortunately for Unicom that market is mostly being met by the gray market importers, rather than them.

Pricing for iPhones in China is as follows (from cheapest to most expensive)

Gray - US based import - hacked
Gray - HK / NZ / IT etc unlocked
Legit - iPhone with no wifi

Guess which vendor sells the least here.
Guess which vendors sell more.
Hint, its not the official ones....

Apple isn't even doing much about it, which if I was Unicom I'd be more than annoyed about, given that they're expected to maintain a high sales average, and are failing that miserably. That will change if/when a wifi version becomes available, and the pricing disparities change.

Hint - you can't sell product here for more than in HK (Hong Kong), otherwise suppliers will just import from HK. There are regular import channels and vendors for HK sourced products in most major cities in China.

Apple pricing in the mainland used to be a good 40% higher than in HK for most products. This year Apple has reduced pricing disparity to less than 10-15% in most models, which makes it less attractive to import. They still need to prove to clients that there is a benefit to buying a mainland unit over an imported unit via their support infrastructure.
The main difference is in the secondary support.
Currently there is very little benefit to buying local as their local repair infrastructure is awful. Apple repair centres here are not run by Apple, but by "authorized" vendors. The support received is sub-par to atrocious. Importers generally have *better* support than the official market. This is something that needs to improve radically if Apple is to increase market share in China.

HK iPhone sales are still way and above way over mainland sales via the official reseller Unicom.

Given the size of the territory, and the amount of iPhones continually sold, it doesn't take much to see that a sizable percentage of those HK phones are being sent to China.

Other issues -

The 2G and 3G models basically come(came) hacked out of the box here. This generally included the phone coming with whatever apps you wanted.
For free.

There are many extremely popular sites which have extensive software sections for iTunes Apps freely downloadable - weiphone and tgbus are two major sites that come to mind.

Now that Apple has more or less locked down their 3Gs phones we're starting to see less hacked phones around, and I expect this to dwindle away as it becomes harder and harder to do.

Previously 100% of iPhones here would be jailbroken and hacked to run pirate games out of the box. Now only 3G and secondhand market 2G are able to do so. 3GS lockdown is the reason Apple is not so worried about App store piracy in the long term.

Lack of hackability is also improving uptake of updates amongst phone users, although this is currently an uphill battle.

Previous generation iPhones have caused users lots of issues when upgraded, so most users now are very wary of updating, even if they have an unlocked phone.

Apple mostly bit itself in the ass by locking phones though on updates.
Users don't care about why, all they know is that their phone doesn't work, and its Apples fault. Word of mouth about that hasn't helped Apple at all.

When legitimate 'crippled' iPhone users *regularly* ask in the forums is it safe to upgrade you know this has really been a fsckup in terms of bad PR.

This will change though.

One more point - China isn't one market.
China is really a selection of city based markets.

Shanghai, Beijing, etc being the main ones.

Apple still doesn't even have any official stores in Shanghai, even though its one of the best options for Apple, in terms of users with high disposable income. Shanghai consumers are probably the best in China for Apple, as consumers here have money, and are keen to spend it on product that shows them as being better than others.
Many many products in Shanghai are sold because they are expensive - the bling bling value is almost worth more to the client than the product itself. Its a way to say - look, see what *I* can afford.
Apple products are positioned perfectly for this market - they have higher perceived value, and fill this cachet nicely.

Unfortunately Apple China Have. No. fucking. Clue.*

*They have finally announced

Why do I feel like every TUAW article is an attempt to get me to buy AAPL stock? I don't care about the market in China.

More product-related articles, please. I'm sure there are plenty of iPhone apps or Mac applications you could fill me in on.

If you add a ' c' in the middle of Analyst, you get something equally annoying and equally full of excreta.

Who pays Analysts for their analyses? Who doesn't have the intellect to do their own research in minutes, but still has enough money to support this sort of industry.