Gold IPhones at $3,600 as China Delay Fuels Black Market

  Bloomberg - Liu Min stands a few feet from anApple Inc. (AAPL) store in Beijing hawking something that can’t be bought inside: the new iPhone 6.
While the device debuted today in the U.S., Hong Kong, Japan andAustralia, there is no release date set for the world’s biggest smartphone market. That creates an opportunity for Liu, who promises two-day delivery of a 16-gigabyte iPhone 6 for 8,000yuan ($1,303) -- almost double the price on Apple’s Hong Kong website.
“It’s going to be a while before the new iPhone comes to China officially, so if you want it now, you have to pay up,” Liu said, pacing outside the Sanlitun district store selling screen protectors. “Give me a call if you want one.”
Liu, who wouldn’t discuss his supply chain, wasn’t alone. Four vendors nearby offered the 128-gigabyte iPhone 6 for delivery on Sept. 20 at the equivalent of about $2,441, compared with the Hong Kong price of about $927.
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Consumers typically waited at least three months for Apple to start selling new iPhones in China, triggering a flood of devices into the country’s black market. As many as 5 million may be smuggled into China before the new models are officially available, said Neil Shah, Mumbai-based research director for devices at Counterpoint Research.
 ‘Sure Bet’
The promise of lucrative returns also has many of Hong Kong’s finance professionals trying to capitalize on one of the biggest arbitrage opportunities in China.
“This is a sure bet to make money,” said Ronald Wan, the chief China adviser at Asian Capital Holdings Ltd. in Hong Kong. “From a 50 percent to 150 percent markup, it’s better than the stock market.”
The benchmark Hang Seng Index, the world’s fourth-largest stock market, has gained 4.3 percent this year.
The Apple delay stems from the fact that the new iPhones have cleared just two of three regulatory steps, the official Xinhua News Agency reported yesterday. The devices still need network access licenses from the Ministry of Industry and Information Technology, Xinhua said.
Carolyn Wu, a Beijing-based spokeswoman for Apple, declined to comment on when the new models will be available in China, what impact smuggling will have on the market or on the status of the government applications.
Wu repeated previous statements that the iPhone 6 “will get here as soon as possible.”
China Mobile Ltd. (941), the world’s largest carrier by users, doesn’t know when the iPhone 6 models will be available in the market, Chairman Xi Guohua said this week.
Breaking Laws
Outside the Apple Store in Hong Kong’s IFC mall, two young women were reselling the new phones for double the price. One foreigner held up a sign saying, “Need an iPhone 6.”
Su Ling, 32, who works in the wealth-management unit at a European lender in Hong Kong, bought two devices through Apple’s small-business website for about HK$6,400 ($826) each and anticipates selling them for about HK$10,000.
“Everyone in my office who could get on the site bought a pair,” Su said. “I plan to go to Shenzhen to sell on the streets” if custom checks entering the border city aren’t too strict, he said, declining to name his employer because he’s not authorized to speak to media.
The phones are multiband devices that will work anywhere. Yet anyone selling a device on China’s black market breaks at least two laws -- the requirements to pay hefty import duties and to only use mobile phones sanctioned for sale by the government.
Trailing Xiaomi
Last year was the first time Apple’s phones were available in China on the same day as the global debut. Previously, the typical three-month lag helped fuel smuggling of about 20 million iPhones into China annually, said Jun Zhang, San Francisco-based analyst and head of China equities research at Rosenblatt Securities Inc.
Apple got $5.9 billion of sales in the fourth quarter from the Greater China region, including Taiwan and Hong Kong. That is about 16 percent of the company’s total. The iPhone is well behind market leaders Xiaomi Corp. andSamsung Electronics Co. (005930), ranking sixth in China with about 6 percent market share, according to International Data Corp.
“Chinese consumers will still find ways to get their hands on the device, regardless of the delay,” said Sandy Shen, a Shanghai-based analyst with Gartner Inc. “I think the lag may even fuel the enthusiasm for the device.”
‘Joining Fun’
Zhang Limin, an investor adviser at China Securities Co. in the northeastern city of Harbin, said he’s willing to pay as much as 20,000 yuan for a device. The 30-year-old currently uses an iPhone 5 and a second handset from Xiaomi.
It’s not just in mainland China where people are looking to profit from the delay. At the computer-store complex in Hong Kong’s Wan Chai district, vendors offer the gold iPhone 6 Plus for between HK$18,000 and HK$28,000.
“Many, many people are asking -- from mainland, from Hong Kong,” said Chen Xiaoming, a 29-year-old worker at the “Well Go Telecom” store.
In the Mong Kok district, a popular shopping destination for tourists, an electronics store offered to buy an iPhone 6 for at least HK$10,000 and an iPhone 6 Plus for HK$12,000.
“It’s not just organized resellers trying to benefit from this iPhone demand in China, but even a lot of individuals are hoping to make a buck in this reselling business,” said Kiranjeet Kaur, a Singapore-based analyst with IDC.
One of them is Zhong Chenyan, a 28-year-old working in Hong Kong’s marketing industry. She bought two gold, 128-gigabyte devices online and plans to sell one to an acquaintance for the equivalent of $1,546. She plans to resell the other for about $1,950.
“Many people around me are doing this, and I wanted to join the fun,” Zhong said. “If I could get the phone and sell it, great.”