Gray Market Casts Shadow Over iPhone's Chinese Debut

ref_iphone3g_pairChina’s smartphone market is surging, according to figures from In-Stat released today. But sales of gray-market phones — which aren’t recognized or licensed by Chinese regulators — are rising right alongside legitimate handsets, according to separate numbers from iSuppli. Together, the reports highlight the vast potential for lucrative, high-end devices in the emerging Chinese market — and what may be a key reason behind the iPhone’s tepid launch last week.

Smartphone shipments in China saw a 30 percent increase in 2008 over the previous year, and the high-end handsets accounted for 15.3 percent of overall mobile phone shipments, up from 12 percent in 2007, In-Stat said. But its report followed yesterday’s estimate from iSuppli that gray-market shipments in China will grow to 145 million units this year, or nearly 13 percent of the size of the legitimate mobile phone business, and will increase to 176 million units by 2013.

Source: iSuppli

Those figures are particularly compelling in light of the lackluster debut of the iPhone in China. China Unicom, which launched the device last week, said yesterday it has signed up only 5,000 iPhone subscribers — a figure Piper Jaffray analyst Gene Munster called “disappointing.” Some analysts have cited a proliferation of iPhone knockoffs, which sell for substantially less than the $700 to $1,000 China Unicom is charging, and which were available long before the official Apple (s aapl) gadget came to market.

There are other reasons for the iPhone’s sluggish start, to be sure: The phone’s Wi-Fi was crippled to comply with governmental regulations, and its price is prohibitively high for many consumers. Plus, it’s possible Chinese demand for the iPhone simply isn’t very strong.

But in a nation where 150 million “missing” handsets seem to exist, the surging gray market has surely impacted sales of the iPhone as well. That’s a lesson other manufacturers need to remember as they try to tap the world’s largest mobile market.