The reasons for that are twofold. Foremost, the iPhone is already killing it in China without China Mobile. And as much as Apple would like to put the iPhone on the world’s largest wireless carrier, it’s not going to do so unless it gets the terms it wants. And right now there’s some disagreement between the two companies over App Store revenue.

Industry sources tell Sterne Agee analyst Shaw Wu that China Mobile is looking for a cut of App Store revenue. Historically, Apple has never done this, and almost certainly doesn’t want to begin doing so now. And with 10 million unlocked iPhones already on China Mobile’s network, and the carrier encouraging them with gift cards for free Wi-Fi service (the iPhone isn’t compatible with the carrier’s TD-SCDMA 3G network), there’s little reason to rush into a deal, particularly one that will require it to produce a TD-SCDMA-compatible iPhone.

So Apple is sitting back and focusing its efforts on the 4G TD-LTE iPhone that will presumably succeed the 4S, and working to ensure that it will be compatible with China Mobile’s network. Presumably, by the time that device is headed to market, the two companies will have finally signed a deal. And in the end, that’s the best move for Apple. China Mobile has more than 628 million subscribers in China, and could potentially double Apple’s market share in the country.

Speaking at the annual shareholders meeting today, CEO Wang Jianzhou said the company has a keen interest in the iPad, suggesting that a distribution deal for the device may be a topic of discussion in talks China Mobile (CHL) claims to be having with Apple (AAPL) about developing a TD-SCDMA-capable iPhone.

It also suggests that China Mobile may be getting a bit desperate for Apple’s hardware now that a new version of the iPhone that supports both 3G and China’s homegrown WAPI wireless standard appears to be headed to China Unicom (CHU), Apple’s carrier partner in the country. This is, after all, the second time this spring we’ve heard about China Mobile “expressing interest” in the iPhone and iPad.

Foreign companies in China increasingly report that they feel less welcome in China, in large part because of regulatory barriers to the massive Chinese market, which is more important for global businesses than ever, and because of increasing competition from Chinese companies whom they believe benefit from those barriers.

But John Deng, chairman of Nasdaq-listed microchip design house Vimicro (VIMC), says the short-term losses of these companies will translate to long-term improvement in high-tech sectors. Vimicro, based in Beijing, is one Chinese company that has become competitive in the global market—it supplies energy-efficient chips to Sony (SNE), Hewlett-Packard (HPQ), Samsung and others—and though he says China should be open for foreign competition and investment, he thinks it’s natural for China to want to set its own technology standards, like third-generation mobile standard TD-SCDMA, and take other measures that will allow local companies to catch up with the rest of the world.

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Apple (AAPL) declined to say what other carriers the company might be talking to, but it’s a safe bet that if the company is in discussions with a second carrier, it’s China Mobile. After all, the two companies have talked about a deal before, and while those negotiations stumbled repeatedly over issues like revenue-sharing and hardware localization, it’s hard to believe that Apple would turn its back on the world’s largest wireless carrier.

There are 600 million cellphone users in China and 415 million of them are China Mobile subscribers. That’s a hell of an opportunity to pass up, no matter how difficult negotiating with the company might be.

According to China Mobile CEO Wang Jianzhou, Apple hasn’t passed it up. During the company’s quarterly earnings call on Aug. 20, Jianzhou said specifically that talks between the two companies continue. Just what they might involve is anyone’s guess, although Dan Butterfield at iPhonAsia speculates that they would likely be for an EDGE 2G-only version of iPhone.

“No matter the future of TD-SCDMA, China Mobile will maintain their EDGE 2G network, which has broad coverage and a clear signal throughout major urban zones in China,” Butterfield writes. “In my view, EDGE 2G could be the bridge between Apple and China Mobile. There are hundreds of millions of low-salaried wireless consumers in China who aspire to iPhone. Many have in fact already purchased cheap Shanzhai (iClone) knock-offs. But Shanzhai iPhones are not reliable and quickly become landfill. A low-priced ‘real’ Apple iPhone running EDGE 2G only, might sell by the tens of millions.”

Unveiled in China this morning, Dell’s (DELL) new handset, reportedly known as the mini3i, runs on China’s Open Mobile System variant of Google’s (GOOG) Android OS and sports a 3.5-inch, 640×360 capacitive touchscreen and a three-megapixel camera. It also features an iPhone-esque GUI and will support applications from China Mobile’s online store, which peddles music and videos as well as games and other apps.

But sadly, the mini3i lacks WiFi and 3G support. It’s strictly a 2G device. Odd, considering China Mobile does offer TD-SCDMA, China’s locally developed 3G standard.

That said, China’s smartphone market is wide open. With mobile phone sales in the country predicted to hit 192 million units, up from 180 million this year, according to Gartner (IT), a cheap smartphone like this could find quite a niche in the lower end of the market, assuming it’s well-priced.

News of the mini3i’s debut comes as Apple works to bring the iPhone to China via China Unicom.

On Friday, China Unicom denied a report by China Business News that the company had inked a three-year exclusive iPhone deal and agreed to purchase five million of the devices. “The report is not true,” a spokesperson said. “Talks between us and Apple have been going on for some time, but no agreement has been reached yet. There are all kinds of possibilities. There is no particular timetable for the talks.”

UPDATE: Dell claims the device displayed in China is a “proof of concept.”

“The only thing that we’re confirming is that we’re in product development with China Mobile,” he told PCMag. “We haven’t named any products, and we’re not confirming anything. We were there showing a proof of concept.

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[Image Credit: mobile.163.com]

Steve Jobs and I hope the iPhone will enter China as soon as possible. We are discussing this issue but we do not have an agreement.”

– China Mobile CEO Wang Jianzhou

It’s been nearly a year and China Mobile is still in talks with Apple about bringing the iPhone to China, though the revenue-sharing issue that had stalled the two companies was resolved back in July. Now we know why the talks keep dragging on: hardware localization. The South China Morning Post reports that China Mobile has asked Apple (AAPL) for an iPhone with Wi-Fi and 3G technology disabled.

Seems China Mobile is building a 3G network of its own using the Chinese developed TD-SCDMA standard and believes that crippling Chinese iPhones will discourage customers from unlocking the device and using it on rival China Telecom’s W-CDMA network. Though, really, China Mobile should know better. China has a thriving gray market for iPhones. In fact, Market research firm In-Stat reported earlier this year that there were some 400,000 cracked iPhones on China Mobile’s network at the end of 2007–10 percent of all iPhones sold by Apple at the time.

So, will Apple agree to the carrier’s demands and customize a piece of standardized hardware for a single region? And beyond that, could CEO Steve Jobs even bring himself to compromise the iPhone “experience”? With 600 million cellphone users in China, 415 million of them China Mobile subscribers, he just might.

Steve Jobs and I hope the iPhone will enter China as soon as possible. We are discussing this issue but we do not have an agreement.”

– China Mobile CEO Wang Jianzhou

It’s been nearly a year and China Mobile is still in talks with Apple about bringing the iPhone to China, though the revenue-sharing issue that had stalled the two companies was resolved back in July. Now we know why the talks keep dragging on: hardware localization. The South China Morning Post reports that China Mobile has asked Apple (AAPL) for an iPhone with Wi-Fi and 3G technology disabled.

Seems China Mobile is building a 3G network of its own using the Chinese developed TD-SCDMA standard and believes that crippling Chinese iPhones will discourage customers from unlocking the device and using it on rival China Telecom’s W-CDMA network. Though, really, China Mobile should know better. China has a thriving gray market for iPhones. In fact, Market research firm In-Stat reported earlier this year that there were some 400,000 cracked iPhones on China Mobile’s network at the end of 2007–10 percent of all iPhones sold by Apple at the time.

So, will Apple agree to the carrier’s demands and customize a piece of standardized hardware for a single region? And beyond that, could CEO Steve Jobs even bring himself to compromise the iPhone “experience”? With 600 million cellphone users in China, 415 million of them China Mobile subscribers, he just might.