Inside the iPhone Gray Market

Encamped along the aisles of the massive Zhongguancun Kemao Electronics Market in Beijing are many people like Li Zhongxin, of the Beijing Xinyu Lianhe Telecom Equipment Co. Li sits atop a plastic stool in front of his open-air stall on the third floor, scanning the throngs of shoppers for would-be customers. There’s no sign of Apple’s iPhone among the thicket of cellphones, handset covers and other accessories hung on shelves and inside the waist-high glass display case, but he’ll be glad to show you one. In exchange for an up-front payment, “you can buy as many as you’d like,” Li says. The assertion may seem misplaced in a country where Apple has yet to introduce the iPhone. The device is officially on sale only in the U.S., Britain, France and Germany, where Apple has signed exclusive contracts with cellular carriers including AT&T. Yet Li’s booming business is the very real byproduct of pent-up demand for a much-hyped device made by a company that places strict limits on where and how it’s sold.

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