How China's Grey Market Is Improving the iPhone Design

In China, iPhones aren't as cool as they used to be. Sure, China's a big market for Apple — its second biggest, actually — but it's not as frenzied as it once was. Unlike the early days of the iPhone 4, there are no iPhone 5 riots or lines of migrant workers hired by scalpers waiting in subzero temperatures outside of Apple stores. What's more telling, though, are reports from Chinese electronics markets that Chinese counterfeiters simply aren't making as many iPhone 5 knock-offs as they did iPhone 4 knock-offs. Instead, they're making fake iPhones that are arguably better than real iPhones by adding the features found on Android devices or even running the Android operating system itself. Whether you call the super clones FrankenPhones or call them a scam, these devices taking over the grey market in China, and they only cost about $50 a piece.

This is an interesting problem for Apple. China is obviously a massive market, but it's also a frugal market. Frugal might even be a disingenuous way of putting it, so let's just say it: China is poor. And iPhones are expensive. A brand new iPhone 5 starts at 5,288 yuan ($850), and the cheapest iPhone available in China costs 3,088 yuan ($495). Shanghai leads the country with an average annual disposable income of about 30,205 yuan ($4,846), but the rest of the country is in the 20,000 yuan ($3,209) range. That means that an iPhone 5 would cost the average Chinese citizen more than a quarter of their disposable income for the year. And that does not include service charges. So what do iPhone-loving Chinese do if they're of modest means? Buy a knock-off, of course.

It's incredibly difficult to say how much of the market is being eaten up by iPhone clones, but you can tell by the arrival of more models and manufacturers that it's growing. Aside from their price, the smartphone clones make better sense for consumers in China, where more than half of the 30 million iPhone users have unlocked the phone to use it on the unauthorized China Mobile network. Jailbreaking is also "wildly popular," according to the Harvard Business Review, largely because Apple did a pretty terrible job at designing a Chinese-friendly input interface for the device. The many unauthorized apps available for jailbroken phones is also a motivating factor.

The hardware is getting better, too. "Brands that were previously known only as copyists have gotten so good at this game that they are even 'improving' on Apple’s designs," Christopher Mims reports at Quartz. "For example… perennial iPhone cloner JiaYu is rolling out a sort of iPhone 5-plus, with a bigger screen (4.5 inches versus 4 inches in the iPhone 5) and a stainless-steel body." In pictures, the new JiaYu G5 actually looks nicer than an iPhone 5, and though it's not yet for sale, its predecessor, the G4, sells for about $240, less than half what the cheapest iPhone would cost.

At this point, the iPhone cloners are getting their new knockoffs to market faster than even Apple can. Last year, the Hong Kong-based GooPhone released a device that's almost identical to the iPhone not long after some images of iPhone 5 parts leaked online. GooPhone is one of the original FrankenPhones that sports an iPhone look and feel but runs an Android operating system with an iOS-like skin. So before Apple had even announced a date for the big reveal event, GooPhone released its clone, and then sued Apple when the iPhone 5 came out, arguing that it was a ripoff of a GooPhone. The GooPhone did go on sale first, though that's not necessarily the be all, end all of trademark disputes.

Even the existence of something like the GooPhone is indicative of what's to come in China. In a country that obviously has the manufacturing capabilities to make devices as high quality as Apple's, if not better, the competition is ramping up. Some think that Apple is designing a cheaper version of the iPhone so that it can compete with Chinese manufacturers, but cheap has never really been Apple's thing. So maybe they don't want the Chinese middle class to buy iPhones. Instead, they're providing some great market research with their clones. Maybe Apple's even taking hints from the counterfeiters now — or just getting ready to sue them all. Weirder thing have happened.