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The black/grey markets in Beijing will blow your mind! On Saturday and Sunday (November 14/15) I had a chance to do a bit of undercover work. I hired a guide to help me navigate the Zhongguancun (pronounces “Djong Guan Tsun”) shopping mall maze – Hailong, Dinghao and e-World Kemao. Jennifer, my guide/interpreter, was in the market for an iPhone (our ruse) and I was going to buy it for her. Hence we both needed to hear the pitch and understand why we should buy the grey-market version versus the “official” China Unicom iPhone.

I was truly impressed by gargantuan size of these Zhongguancun region malls. Picture four or five Manhattan-sized Macy’s department stores filled to the rafters with electronics and other sundry goods. Untold thousands of shoppers fill these stores each day. From the moment you walk in the door (if you look like money or are a tourist) you’re besieged by barkers attempting to coax you over to their store space. They are not subtle and will do anything to get your attention and ultimately your yuan renminbi. No judgment here, this is a game of survival in an electronics jungle. There’s no room for the meek.

One thing you’ll quickly observe … there are mobile phones everywhere. Handsets are a central part of Chinese youths’ lives and the selection of phones is something to behold.

If you want to buy an iPhone … not a problem. Just ask any one of the mobile handset vendors. Even if an iPhone is not on display (and there are plenty in plain sight), just ask and you’ll soon have one in hand.

No sooner had Jennifer and I walked in the door of the Hypermart and barkers were in full voice Chinglish (for my benefit) “You wan computer? … very cheap.” Jennifer shook her head and uttered one word “iPhone.” Instantly a fleet-footed barker in blue blazer and tie (the standard uniform throughout the malls) pulled us aside and beckoned us to follow. We were ushered down a hallway to a bank of elevators and up to the seventh floor, then down a corridor (“where the heck are we going” I thought) and into a private room. It was not so private. There were 30 or so shoppers engaged in enterprise with a dozen blue-blazer salesmen. Our barker sat us down at a table and within moments a salesman appeared with an official looking iPhone box. The pitch was on. Jennifer asked my prearranged list of questions (in Mandarin of course) while I closely inspected the iPhone. It was real as best as I could tell and after navigating the UI it looked/functioned as expected. This was a gen one 8GB 2G iPhone and it had seen better days. No plastic covering on the screen and the casing had several scratches.

During the next few hours, Jennifer and I sat through eight or nine iPhone demos … all of them were jail-broken/hacked or unlocked iPhones smuggled in from Hong Kong. All but one of the iPhones appeared to be real (only one clear Shanzhai iClone) and I inspected them closely. There were several that were brand new 16GB and 32GB iPhone 3GS.

Perhaps the biggest source of these grey-market iPhones in Zhongguancun was the Apple “Authorised” Reseller stores. Each mall we entered had 3 or 4 of these stores complete with phony Apple logos. These stores do their best to mimic the Apple look and are very convincing but their “authorization” is about as legit as Madoff’s split strike investment strategy.

The only authorized Apple reseller in Beijing is Drangonstar. The hundreds of phony Apple “Authorised” stores (could be 100+ locations in Beijing alone) no doubt fool many shoppers. The Macs, iPods and iPhones on display look amazingly real. And I suspect that many are in fact the real McCoy. Yet buyer beware! I learned from some Apple savvy expats in Beijing that you can only tell you’ve got a bandit (Shanzhai ji) when you take your purchase home and discover the erratic (crappy) non-Apple like UI and inability to synch to iTunes.

So many have been burned by these incidences that the miss-trust unjustly spills over to the real Apple Store in Beijing (Sanlitun). I heard anecdotally that one Sanlitun Apple Store shopper insisted that the new iMac he purchased be completely unboxed and booted up before he would leave the store. Sounds crazy as the legit Apple Store at Sanlitun has an impeccable record of integrity and service. But this just goes to show how deep-rooted the mistrust is in China as a result of the Shanzhai ji (counterfeit goods) markets.

It wasn’t all grey/blackmarket snooping … Jennifer and I also went to a China Unicom “Wo” Store and to several official Unicom affiliates who were selling on-contract iPhones. In my opinion, the official outlets need significant help with their iPhone sales pitch. The Unicom staff are focusing on the subsidies (for on contract buyers) and the warranty as the key selling points against the WiFi enabled grey-market iPhones and they are not stressing other value-add propositions. The warranty is important but they need to present the other benefits of going official (e.g. no bricking concerns, easy software updates, fully localized with China apps preloaded, no extra unlocking fees or total lack of tech support/service that you’d have with a grey-market purchase. They also surprisingly failed to pitch their own Wo Portal with apps and services and completely missed the opportunity to pitch the Apple App Store even though Jennifer asked several leading questions.

Jennifer and I also went to mystery shop several official iPhone distribution partners – Carrefour, Gome, Suning and Best Buy. To my surprise, the Suning stores we visited had not yet stocked the iPhone.  The first Suning store we visited had no idea that they would be selling the iPhone. The second Suning Store staff said for sure iPhone was coming but they did not know the exact date.

The first Carrerfour store (in the Zhongguancun mall) we visited also “dk”ed anything about selling iPhones. I know Carrefour has a deal with China Unicom to sell iPhones so I pressed to speak with a manager. It wasn’t long before a gentleman in a suit appeared and he explained that they had received their initial iPhone inventory, but they had not yet been given clearance to put up iPhone signage and he wasn’t sure when they would get the green light to sell.

Hmmm? This had me perplexed. The official customized China Unicom iPhone launched in China at the end of October. Here it was already mid November and many of the official distribution partners did not have iPhones for sale? Not even signage? These were not small stores mind you. The retail stores we visited are as big as most Best Buy locations in the US. NOTE: Read update re China Mobile playing hardball with potential iPhone distributors > HERE

Not ready to give up, we moved to another part of town. Good thing too. The next Carrefour Store we visited did have their signage up (since Nov 1) and had iPhones nicely displayed. The staff was on top of things and presented more effectively than the China Unicom Wo employees. The Carrefour assistant manager let me know that he had sold 27 iPhones in his store since November 1st. 10 were iPhone 16GB 3GS and 7 were 32GB 3GS. He had recently sold out his initial allotment and had taken 4 iPhone reservation orders. Just goes to show that training sales staff does make a difference.

One item of note is that only the China Unicom Wo Stores and the Unicom mall affiliates are selling on-contract (subsidized) iPhones. All other iPhone distribution partners – Gome, Suning, Carrerfour and Best Buy are, or soon will be, selling off-contract iPhones at full “bare-metal” (no contract) prices. This is not too surprising as a significant majority in China prefer to go prepaid.

The Best Buy Premium store we visited in Beijing did have their signage up and they were selling iPhones. The BB Premium store was located in a very upscale mall (many new Audis, BMWs and Mercedes in the parking lot), and I was lucky enough to witness an iPhone sale while we were there.

One sidebar … W-CDMA 3G coverage in Beijing is great. In 4 days I only had one moment without a good connection. I live near San Francisco and my 3G connection is very spotty. China Unicom has had their 3G network up and running for a few short weeks. AT&T has had a few years to get it right. What’s wrong with this picture?

iPhonAsia Travelogue series (Beijing, Shanghai and Hong Kong):

• iPhonAsia Travelogue Part 1: Wheels down in Beijing
• iPhonAsia Travelogue Part 2: Getting Oriented in Beijing
• iPhonAsia Travelogue Part 3: Into the heart of darkness – shopping the Beijing iPhone blackmarket
• iPhonAsia Travelogue Part 4: No stop signs in Beijing – The Shanzhai ji counterfeit culture
• iPhonAsia Travelogue Part 5: Secret rooms with hidden Shanzhai treasures (Shanghai)
• iPhonAsia Travelogue Part 6: Warming up in Hong Kong
• iPhonAsia Travelogue Part 7: The Hong Kong iPhone market

Tags: Apple, Beijing, Best Buy, Black-market, Carrefour, China, China Unicom, Dinghao, e-World Kemao, Gome, gray market, grey market, Hailong, iPhone, Shanzhai ji, Suning, WO, Zhongguancun