Apple products are hugely popular in China. In fact, Apple COO Tim Cook said last week in an earnings report that China was "very key" to Apple's third-quarter results, and he said in the past year sales in China increased by "over six times."
But the popularity of Apple goods in the country has caused a huge spike in smuggling to meet "insatiable demand," Reuters reports. iPhones and iPads have become a status symbol in China, and these products are being carried illegally across the border from Hong Kong, where they're quickly sold at a discounted price.
Reuters notes that in Hong Kong the official price of an iPad 2 is HK$3,888 (about $499 USD), and in China the official price is 3,688 yuan (about $572 USD). Black market retailers on the mainland usually sell the smuggled devices at somewhere between those prices to lure in buyers, Reuters says.
"When customers ask us about maintenance, we just tell them, don't worry, these are all real from Hong Kong and they won't go faulty," said one store owner, who is only identified by his last name, Xu.
From his storefront in a multi-level market in downtown Shenzhen, Xu sells hoards of Apple products which Reuters says thanks to discounts are "flying off the shelves." He also peddles phones made by companies like HTC, Nokia, and Samsung. Dealers such as Xu often use student "mules" to carry these products across the border on their daily commute to their schools in Hong Kong from their homes in Shenzhen, Reuters says. For an example of what one of these Shenzen electronics markets looks like, check out the PCMag slideshow below.
On the legitimate side of things, there are four official Apple Stores in China: two are in Beijing and two are in Shanghai. The company said in its earnings report that it will open a location in Hong Kong in the fourth quarter.
Fake Apple products have been a problem in China in the past, but now it's also been revealed that there are even fake Apple Stores in the country. Last week a blogger revealed five stores posing as Apple Stores in the southwestern Chinese city of Kunming. Two of these stores have been forced to close, but not because they're selling products without permission from Apple that have likely been smuggled into the country, but because they lack the necessary business licenses.
It's unclear how China will deal with smuggling. In June, Reuters says authorities in Shenzen broke up several smuggling rings that attempted to ship more than 300 computers and a "large number of iPads" that added up to a total of 1.5 billion yuan ($230 million). But that's likely only a small part of the problem.
Apple has refrained from commenting on both the fake Apple Stores in Kunming as well as the reports on smuggling. But the company has made it clear that it values its business in China. The country made Apple $3.8 billion in the last quarter and $8.8 million in the last year.