China has the largest number of mobile subscribers in the world, by far. With over 600 million subscribers, wireless carrier China Mobile is the number one carrier both in China and in the world. Despite receiving a globe-leading 24 million smartphones in Q3 2011, China is still a relatively untapped market. At the end of 2010, smartphone penetration in China was only at 15 percent. This number is expected to rise over the next several years as customers upgrade their feature phones and replace them with smartphones.
As MIC Gadget points out, the iPhone faces stiff competition from a variety of local handset makers which sell their smartphones at a fraction of the cost of the iPhone. The 8 GB iPhone 4 is available unlocked from Apple for RMB 3,988 (US$630), while most of its Android and Windows Phone competitors are available for ¥2,999 (US$475) or less. Many of these competitors listed by MIC Gadget have a decent set of specs, which includes a 1.0 GHz or higher dual-core processor, a 4.0-inch display and 8 GB or more of internal storage.
This doesn't mean Apple is going to lose significant ground to its low-cost competitors in China. Apple already has those customers who prefer the quality of an iPhone over a cheaper alternative. What the Cupertino company has to do is woo those customers who won't pay full-price for an unlocked iPhone. Apple can grab these customers, too; it just needs to work with carriers to offer a contract-based iPhone with a lower up-front cost.