Fake Apple Stores in China Sign of Heavy Demand for iPhone, iPad

China has always been known for counterfeiting high-end luxury brands. But not content to pirate software or copy phones, entrepreneurs have now cloned the entire Apple Store.

Chinese officials closed two unauthorized Apple stores for operating without a proper business license, according to news reports. However, three other fake Apple stores were allowed to remain open because they had proper local permits.

As part of a probe of more than 300 IT businesses, the Kunming Trade and Industry Bureau identified five businesses that were using the official Apple logo without "Apple's authorization," the government agency said July 25. The stores were located in Kunming, the capital of the Yunnan province in southwest China.

At least one store mimicked the Apple decor, including the bright blue T-shirts and white tags Apple employees wear, the bureau said. Authorities did not find any counterfeit Apple hardware among the 12 computers and six mobile phones sold in the fake Apple stores.

"There is no Chinese law that says I can't decorate my shop the way I want to decorate it," an employee at one of the fake stores told Reuters, noting that there were no counterfeits being sold at the store.

Apple has four authorized Apple Stores in China, two in Beijing and two in Shanghai, but none in Kunming. The authorized stores are the four most heavily trafficked Apple Stores in the world, according to Apple.

Calling China a "well-known hotspot" for counterfeiting and piracy, there is a "traditional lack" of intellectual property enforcement within the Chinese business culture, Victor DeMarines, vice president of products at V.i. Labs, told eWEEK. "The Apple Store case is a creative example," DeMarines said.

The presence of these fake stores highlights the intense demand for Apple products in China. Only 53 percent of the 1.07 million Apple iPads sold in China last quarter were through vendors sanctioned by Apple, according to research firm Analysys International.

Smuggling is also highly lucrative, as iPhones and iPads are illegally brought into China from Hong Kong. The official price of an iPad 2 is HK$3,888 (about $499 USD) in Hong Kong, compared to the official price of 3,688 yuan (about $572 USD) in China, according to Reuters. Chinese black market retailers offer smuggled devices priced somewhere between those two prices, Reuters reported.

"China has taken rip-offs to a new level, pirating Apple Stores themselves," Charles Wolf, a securities analyst for Needham & Company said, adding, "It speaks to the demand for Apple products throughout China."

Apple reported July 19 that fiscal third-quarter sales in Greater China, the area including the People's Republic of China, Hong Kong and Taiwan, were six times greater than the same period a year ago. At $3.8 billion, revenue from Greater China accounted for 13 percent of total income, Apple said.

Chinese piracy and counterfeiting cost American businesses an estimated $48 billion in 2009, the U.S. International Trade Commission said in May.

A Chinese government official said earlier in the month that piracy is not an "extremely serious" problem, Reuters reported. After police shut down 12,854 illegal plants making pirated and counterfeit products in a nine-month crackdown that began in late October, the situation has improved, said Jiang Zengwei, vice minister of commerce, at a press conference.