24/7 Wall St.

Apple (AAPL) is about to launch its iPhone in China, the largest cellular phone market in the world. According to The Wall Street Journal, China Unicom (CHU), the second largest cellular carrier in the  country will be Apple’s partner. The paper reports, “Cynthia Meng, analyst for Merrill Lynch in Hong Kong, said in a report that she also expects the iPhone to launch in the fourth quarter this year, in conjunction with Unicom’s planned launch of 3G in October.”

Apple will have to contend with piracy as does every other technology companies that does business on the mainland.

There are already a number of “knock off” versions of the iPhone in China and consumers can buy “unlocked” Apple handsets that work on some local networks. The presence of counterfeit handsets is almost certain to rise as Apple increases its presence in the market.

The Chinese market is attractive to Apple because it has almost 700 million cellular subscribers, but the US company should not expect a level competitive playing field in the world most populous country. The largest carrier in China, China Mobile (CHL), is partially owned by the government and it will almost certainly launch its own smartphone product to compete with Apple. That product will probably  have features nearly identical to those of the iPhone. Those features may be so identical that they would be prohibited by law in the US.

Apple may find, as Microsoft (MSFT) and other US tech companies have, that China is big place but not a profitable one to do business.

Douglas A. McIntyre