Chinese firms are making and exporting ever more suspect phones

CHINESE consumers appear fixated with Apple’s iconic iPhone. It draws throngs of eager buyers in Shanghai’s Xujiahui computer market. Similarly, at the Canton Trade Fair in October, vendors hawking familiar-looking silver and black slabs were convulsed in crowds, in sharp contrast to the deserted booths of rival brands, where lonely salesmen slurped disconsolately at noodles. So how can it be that China Unicom has seen dismal initial sales under its exclusive arrangement to sell the iPhone in China?

The explanation lies in China’s huge “grey” market for handsets, which includes some genuine phones imported without the manufacturer’s blessing but is mainly comprised of knock-offs. The iPhones at Xujiahui fall into the former category; those at the trade fair into the latter. Illicit phones comprise a staggering 40% of Chinese firms’ production, and 13% of the world’s, according to iSuppli, a research firm. It reckons China will produce 145m of them this year, up by almost half since 2008. This has hit sales of legal phones. …