According to this report from In-Stat, 400,000 grey market unlocked iPhones are being used on China Mobile's network. That is 10 percent of all iPhones sold to date and more than I would have guessed, but from what I have seen around Shanghai, the iPhone is already a hit in China. Young urban people know all about the phone from coverage on Chinese websites, and the city's many electronic markets are full of the devices. The phones are sold already unlocked and installed with a China Mobile SIM card for about RMB4,000 (US$555). A search on Chinese e-commerce site Taobao for iPhone generates over 2,000 results.

Apple has been talking to China Mobile about the iPhone, and it will be interesting to see how Apple ends up bringing the phone to China. The company looks to be in tough spot because you can not sell a phone in China without approval from the government, and state-controlled China Mobile (with over 370 million subscribers) is not in a spot where it needs to accommodate a handset maker, especially when hundreds of thousands of users are already paying China Mobile to use that device on its network. It is unlikely China Mobile will agree to tying the phone to an expensive service plan, as most Chinese mobile phone users go the pre-pay route.

In-Stat had a good explanation of why the iPhone will succeed in China:

"[China is] different from the US where the smartphone market is fairly limited, appealing primarily to business users. The smartphone market in China, though, is an entertainment-oriented individual consumer market. The main reasons that Chinese mobile users purchase smartphones include entertainment (such as music players, cameras and video) and to access mobile Internet applications (such as IM, e-book, and games) . . . . We estimate that 20% of handsets sold in China in 2007 cost more than 4,000 RMB (US$533). In another words, there are an estimated 28 million potential users for the iPhone in China."

An interesting comparison is that of the performance of RIM's Blackberry, which was launched in China in May 2007. According to a report in August, the number of Blackberry users in China was still tiny even several months after launch. You see very few Blackberries in China, aside from traveling Western businessmen. This is probably mostly due to the fact that the Blackberry is tied to an expensive service plan.

The iPhone will probably come to China this year, and if it comes unlocked, there will be great demand for it.