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Apple plans 5th store in booming China market

By David Barboza
New York Times / July 25, 2011

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SHANGHAI - Apple is planning a third, even larger Shanghai store, as well as dozens of other stores throughout China, to cope with huge crowds at its 16,000-square-foot flagship store and a branch four miles away.

Apple says its Chinese outlets - two in Beijing and two in Shanghai - are the four most heavily trafficked Apple stores in the world. They also generate the most revenue. Apple’s push into China shows the depth of the country’s fast-growing upper middle class, and its success shows that with products not so easy to counterfeit, Chinese consumers are willing to pay a premium.

Scarcity seems to be feeding the frenzy. Shortages, bottlenecks, and delays have created a thriving gray market in Apple products in China, with many consumers paying hefty prices for iPhones or iPads that have been smuggled in from overseas, ahead of the Chinese release date. Over the weekend, Apple said its bottlenecks have eased.

Last week, Apple reported blockbuster sales and profits in its third quarter, including $3.8 billion in revenue in greater China, which includes Taiwan and Hong Kong. For the first three quarters of Apple’s fiscal year, revenue in greater China was $8.8 billion - six times that of a year earlier. Last quarter, Apple may have even generated more revenue in China than Lenovo - the Chinese PC maker that seven years ago acquired IBM’s personal computer business, according to a survey by Bloomberg News.

China has become the second-largest market, after the United States, for apps that run on the smartphone and tablet, according to Distimo, a Dutch company that tracks the popularity of apps.

But how is this going over with the Chinese government, which has been known to create barriers for foreign brands?

The company is operating in the relatively open retail market, where restrictions have been eased. And Apple products do not compete head-to-head with those made by state companies. For instance, there are no major state-owned mobile phone makers.

In fact, Apple has been eager to team up with state-run telecom companies, which control mobile phone subscriptions.

One of the biggest risks, analysts say, comes as Apple moves into social networking or cloud computing, both of which pose a challenge to the Communist Party.