Apple 2.0

Covering the business that Steve Jobs built

Tasers, taxes and the launch of the iPhone 5 in China

December 15, 2012: 11:14 AM ET

Why are the lines of Chinese buyers are so long in the U.S. and so short in Beijing?

Tased in New Hampshire

Tased in New Hampshire

FORTUNE -- Two seemingly contradictory stories made headlines this week.

On Tuesday, a 44-year-old Chinese woman was captured on video being tased and handcuffed in a Nashua, N.H., mall after trying to buy more than her allotted quota of iPhone 5s. According to witnesses she became violently abusive when asked to leave the store, first by Apple (AAPL) management, then by Nashua cops. Her boyfriend denies that she was collecting phones for resale in China, but according to the officers who arrested her she was carrying $16,000 in cash.

Removing unneeded barricades in Beijing

Unbarricaded in Beijing

On Friday, Apple began selling the iPhone 5 on mainland China, and the few buyers who showed up were outnumbered by reporters. Videos from Beijing Apple Stores show staffers removing crowd control barricades that had been set up the night before but turned out to be superfluous. News of the iPhone's chilly reception in China helped drive Apple's share price to a 10-month low.

Why are Chinese customers lining up to buy the iPhone 5 in the U.S. but not in Beijing or Shanghai?

We've seen a lot of explanations -- from a snowstorm in Beijing to a clunky pre-registration system. But the simplest answer is this: $197.75

That's the difference between the price ($649) of an unlocked 16GB iPhone 5 purchased in New Hampshire (where there is no sales tax) and the price (U.S. $846.25) of the same iPhone purchased in Beijing (where it is heavily taxed). Apparently it's cheaper to pay middlemen  to buy an iPhone in the U.S., ship it to Shanghai, and sell it in the mainland's grey markets than it is to pay a Chinese import tax.

The price differential goes up dramatically if you can manage to get an AT&T (T) iPhone purchased with a 2-year contract to work on a Chinese carrier's network. Apple sells those babies for $199. Walmart (WMT) sells 'em for $127.

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About This Author
Philip Elmer-Dewitt
Philip Elmer-DeWitt
Editor, Apple 2.0, Fortune

Philip Elmer-DeWitt has been following Apple since 1982, first for Time Magazine, and now on the Web for Fortune.com.

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