Early on the morning of 16 March, Wong Tat joined a line of about 100 people waiting for the launch of the new iPad in a chilly rain outside an Apple store on the outskirts of San Francisco. When the doors opened, he was among the first to buy his quota of two iPads – the maximum Apple allows per person. Then, sporting a bright red cap for easy identification, Wong began to direct a stream of people toting their new tablets to a silver Mercedes 4x4 in the parking lot.
After about two dozen of the neatly boxed iPads had been put in the trunk, the 4x4 sped to a nearby run-down hair salon and massage parlour. There, the haul of tablets, costing about $12,000, was transferred to red, white and blue wholesale bags, which Wong then spirited out the back door into another car. "They're headed for China," said Amy, a thirtysomething hair stylist at the salon who had joined in the pre-dawn operation outside the Apple store. She would not divulge her last name.
The iPads had embarked on the first leg of a journey that would ironically return them to the country where they were assembled in the first place. They may have been stuffed into suitcases and taken by passengers on a flight to China, or possibly flown by courier to the duty-free territory of Hong Kong and smuggled in students' backpacks across the border onto the mainland.
Demand for Apple products, coupled with severe constraints on local supply, has created a thriving black market. A 16Gb iPad bought in San Francisco for $499 – about $540 including tax – can be sold for more than $1,000 in Shanghai the next day. Apple says it sold more than 3m of the devices – which now come 4G-ready with a sharper "retina" display – in its first weekend.
"You can pretty much determine when the first iPad arrives in China by monitoring the first flight out from the US on launch day," said an Apple employee who was not authorised to speak on behalf of the company.
The same process happens in other cities: on the same day that Wong was at work in San Francisco, the London Evening Standard reported that "black market gangs" had hijacked the launch, with buyers leaving the Apple Store in Westfield with the standard two iPads and then handing them, still in their shrinkwrapped boxes, over to eastern European men. It quoted Martin, 33, one of the people who queued to go into the Apple Store in Covent Garden again and again, and who explained: "I hope to get around 70 iPads today. I will be sending them on to India. The guys who are queuing get paid £10 or £20 for a day's work. I know them from my community centre, word gets round that this job has to be done."
Companies that make iPad accessories, such as cases and speakers, also hire people to wait in line on launch day, a source involved in that business said. Because accessory makers do not get an early peek at Apple products, they have to scramble as soon as new iPads and iPhones hit the streets to reconfigure assembly lines and craft accessories that fit any tweaks in the design, he said, speaking on the condition of anonymity.
Nursing the husk of a new machine
People like Wong, dubbed huangniu, or "yellow-bull black-market operator" in Chinese, have operated richly lucrative businesses. They pay people like Amy – codenamed "nurses" because the word "hush" sounds like "helpers" in Chinese – $20 to $30 to queue to buy an iPad or iPhone for resale on the black market. Factor in as little as $12 to ship each device via a Chinese shipping agent, and small wonder Wong and his ilk found it worth their while.
But it is getting tougher and costlier to smuggle the devices into China as the Chinese customs authority has told some US-based shipping agents not to accept orders of iPads, and warned travellers to declare their gadgets at the border and pay a 10% import duty on electronics.
Two small shipping companies that ship to China, BLZ Express and Global Courier Services, said they now refuse iPad shipments. BLZ, based in Fremont, California, posted a notice on its website this month saying: "Our clearing warehouses have stopped receiving iPad in accordance with a recent customs authority notification." UPS and FedEx, the largest US package delivery companies, did not return requests for comment.
In Shenzhen, across the border from Hong Kong, an online report from the state-owned Guangzhou Daily – a mouthpiece of the local government – said the newest iPad was among 20 taxable goods that should be declared by travellers.
"I stopped carrying iPad a few months ago because now the customs at Shenzhen can be pretty strict," said a Chinese student in Hong Kong, who declined to reveal his payoff for smuggling.
Meanwhile, Apple now simultaneously launches devices in multiple countries, boosting availability and depressing black market prices, although the new iPad with its higher-quality display was available in fewer countries initially than its predecessor. A key launch venue is Hong Kong, however, which was among the 10 countries for the initial launch – unlike last year, when the territory, a key channel to China, was not included in the launch day.
"It's getting really hard to do this compared to previous years," said Amy, who wore a dyed red streak in her hair, as she trimmed a young man's "faux-hawk" hair style in the San Francisco area salon. An electronics dealer in Oakland, California, said he struggled to break even this year, a far cry from previous iPad releases when he shipped upwards of 1,000 tablets and pocketed profits of $50 to $100 per device sent to his buyer in Hong Kong.
This year, he had no choice but to send 250 iPads via FedEx – which quotes $110 to ship a tablet weighing about 1kg to China – hours after they hit US stores. The same-day launch of the tablet in 10 territories, notably including Hong Kong, curtailed demand. "This whole game is over," the dealer complained. "There's an overabundance of supply. The market's flooded." He said he visited only a couple of stores in the San Francisco bay area for tablets, with the Chinese black-market selling-price falling every day that passes.
Proudly worn
Despite that expansion in inventory, demand in China still outstrips supply. Online retail site Taobao.com carried iPad listings last week for as much as $1,100, though $600 to $700 price tags were more common. While iPads and iPhones have become badges of western chic and status to upwardly mobile Chinese, they are usually the last to be able to buy them directly from Apple stores.
Industry sources say smugglers operate out of multiple countries, but mainly in the US because that is where stores carry the most products.
Last Friday in Hong Kong, stores ran out of the newest iPad within hours. They are now sold via a daily lottery there, while they are still readily available in many US stores.
The Chinese "nurses" are easy to spot: they stroll in, hand over a note describing the model they want and leave as soon as they get it, whereas an ordinary buyer will often take their gadget out for a test drive before leaving the store and ask sales staff numerous questions. "Apple has gotten so big that they can flood the market. Before they released it, they probably had been making them for six months and had them sitting in a warehouse. Now they are selling it in Asia and Australia, and it's out 16 hours before us," said the Oakland dealer.