Sticker Shock Doesn't Stop the Chinese From Buying iPhones

A woman counts Hong Kong dollar banknotes as people resell Apple Inc. iPhones across from the company's Causeway Bay store during the sales launch of the iPhone 6 and iPhone 6 Plus in Hong Kong, China. Photographer: Jerome Favre/Bloomberg

On Alibaba's vast Chinese shopping site, you can buy a pedicure-massage chair for $800. If you want to buy a new iPhone in China, it'll typically cost you more than that. Millions of Chinese do anyway.

On Apple's earnings call today, CEO Tim Cook said 20 percent of iPhone purchases in Greater China (encompassing the mainland, Hong Kong and Taiwan) are subsidized, meaning the customer's mobile carrier covers part of the cost of the device — the standard system in the U.S. That means 80 percent of people getting iPhones in China pay full price.

The iPhone 6 goes for 5,288 yuan ($864) at the Apple Store. That's a pricey phone no matter where you're from, but especially in China, where the most popular Xiaomi smartphones go for about a third of the price. Yet, the Chinese are buying iPhones. Last quarter, iPhone sales to customers were up 32 percent in Greater China compared with the same period last year, and that's without a new phone release during the quarter. (The iPhone 6 just came out in China on Friday.)

"When I look at China, I see an enormous market where there are more people graduating into the middle class than any nation on Earth in history, and just an incredible market where people want the latest technology and products that we're providing," Cook said on the call. "So we're investing like crazy in the market."

Cook didn't say what sales were like during the iPhone 6's opening weekend in China — only that he's "incredibly bullish." The chief executive officer acknowledged that "there are regulatory pressures on subsidies" that could discourage those 20 percent of buyers from getting a new phone. The government told its state-run carriers this year to cut spending on marketing and subsidies. China Mobile, the largest operator that only recently began selling iPhones, quickly responded, and is focusing on pushing cheaper devices.

China's subsidy crackdown seemed likely to make the iPhone and Samsung's high-margin Galaxy line a tougher sell. Apple appears to be doing OK. Cook said the company is doubling the number of stores in Greater China, where it has 15 currently with plans to expand to 40 in the next couple of years. The same can't be said for Samsung.

Perhaps a better test of Apple's mobile mettle in China will come with next quarter's results, which will include the launch of the iPhone 6 and 6 Plus. China loves big phones, so expectations should be high.

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