2011年7月31日 星期日

UBS outlines strategy for new China alternatives business

1 August 2011   Asianinvestor

By Leanne Wang

UBS Global Asset Management has set up an alternative-investments unit in Beijing to meet the surging demand for hedge-fund and private-equity exposure from institutions and high-net-worth individuals (HNWIs) in China.
The local entity will enable UBS to provide onshore alternative products to domestic investors and offer investment-management and advisory services in areas such as the set-up of private-equity funds, direct PE investments and funds of funds.
Ling Xinyuan, chairman of the new business, says surging demand in alternative investments in China was the catalyst for creating the company, which primarily serves institutional investors, such as pension funds and insurance companies, and wealthy individuals.
For example, the total capital committed to China's PE market stood at $652 billion as of June 30 and demand is growing particularly fast among domestic HNWIs and family offices, according to Zero2IPO, a Beijing-based consultancy.
However, UBS plans to take a different approach than most to private equity.
China’s PE market tends to focus on pre-IPO equity investments, notes Ling. When excessive money chases a limited supply of pre-IPO targets, the entry price multiples go up, but the risks also increase.
“There is a mismatch of resources in China at the moment," he adds. "Too much short-term money goes into long-term projects, while long-term institutional investors do not find enough long-term investment products."
As a result, says Ling, UBS's new alternatives unit will provide investment products with lower risks and more stable yields for long-term investors with a horizon of 10 years or more.
The prospective product offerings relate to real estate and infrastructure projects and funds of PE funds, he notes, but pre-IPO projects will not be the main targets.
UBS has a long track of record in managing PE FOFs in Europe and North America, adds Ling, and in the past few years the firm has helped offshore investors pick good onshore PE funds.
The new unit completes UBS’s asset-management offering in China, where joint-venture fund manager UBS SDIC and UBS Securities already make traditional investments in listed securities.
China’s institutional investors, such as sovereign wealth funds, have been increasingly active in the alternatives arena in recent years.
China Investment Corporation says in its 2010 annual report, released last week, that it has increased its allocation to alternative investments such as PE, real estate (Reits in particular), infrastructure and direct investment.
And the National Council for Social Security Fund (NCSSF) has also been tapping alternative assets such as social security housing. In July it confirmed it had lent Rmb4.5 billion to the municipality of Chongqing to build 37,400 units of social security housing. In June and February, it agreed to two similar projects, in Tianjin and Nanjing, each worth Rmb3 billion.

2011年7月29日 星期五

Sharp President Pushes Solar Power in Japan's Nuclear Wake

JULY 25, 2011    the wall street journal


As Japan rethinks its dependence on nuclear energy in the wake of the Fukushima nuclear accident, Sharp Corp. is out front in the discussion over what's next.
A proposed shift in Japan's energy policy could mean higher electricity costs for Sharp and its fellow manufacturers. Sharp—whose biggest businesses are liquid-crystal display panels and television sets—is a member Keidanren, a powerful Japanese business lobby opposed to the proposed renewable energy bills.
[SHARPBT]Kyodo/Landov
Sharp's Mikio Katayama says, under the current system, an alternative to nuclear power would cost more.
However, Sharp could benefit from the new policies, which would require utilities to buy up electricity that comes from renewable sources. The company is Japan's largest supplier of solar panels, which accounted for about 9% of Sharp's overall revenue of ¥3.02 trillion (US$38.57 billion) in the last fiscal year.
Sharp President Mikio Katayama sat down for a recent interview with The Wall Street Journal at the company's headquarters in Osaka. Edited Excerpts:
WSJ: How has the Fukushima Daiichi nuclear accident changed the nature of discussions about renewable energy?
Mr. Katayama: In recent years, most people have talked about solar power as one of the ways to address global warming. Reducing carbon emissions was the main incentive for promoting renewable energy. If you just focus on the issue of global warming, you could argue that using more nuclear power is already sufficient.
Since the nuclear accident, discussions are no longer limited to the context of global warming. As people have become more aware of the risks nuclear power involves, Japan is now asking itself a more fundamental question of how to secure energy, like it once did during the oil crises in the 1970s.
WSJ: Is it necessary for Japan to gradually move away from nuclear power?
Mr. Katayama: It would be too simplistic to say nuclear power is good or bad. There's no doubt that people are starting to question nuclear power's safety and security. Nobody would say "please build a nuclear plant next to my house." The actual cost of nuclear power may be different from previously estimated. Still, under the current system, using an alternative power source would be more costly.
Safety may be the most salient issue for people living relatively close to a nuclear plant, but it may not be so for those who are relatively distant. Wealthy people may not mind paying a bit more for electricity, while others may find it painful. Among businesses, manufacturers that consume a large amount of power and service industries that don't require much power may have different perspectives. The question is how to find a way to design a compromise plan and agree on it. That's what political leaders need to work on.
WSJ: Is solar power cost-competitive?
Mr. Katayama: People often misunderstand the cost of solar power. Its cost is mostly the initial investment of buying solar panels and setting them up.
Because solar power generation involves no turbines, motors or other driving systems, it has a very long life span. Semiconductors used in our solar cells could last for a century or longer. In Japan, solar panels are still primarily used on rooftops of houses and Japanese houses typically last only about 30 years. When houses are finished, so are the solar panels on their roofs.
But at large solar-power plants, once you've collected the initial investment, the rest of the cost will be just for maintenance. Large solar projects in the U.S. and Europe are all based on such long-term cost analysis. Japan has yet to develop a system for solar power generation for industrial purposes, because the country has been depending mostly on thermal and nuclear power.
WSJ: How does Sharp compete against Chinese solar-panel makers?
Mr. Katayama: Solar power, or any other energy, is in the realm of government policies. It would be a huge mistake to think that the cost of solar power is determined by competition among private companies. Governments get involved in all sorts of ways, like feed-in-tariffs or other subsidies for construction of facilities.
China, as a result of its strategic decision, has many solar cell companies. That's causing a supply glut. China's current inventories are said to be larger than the world's solar power demand for this year. What will Japan do? If the government doesn't do anything about the situation, we would have no choice but to make our domestic operations smaller.
WSJ: Why is Sharp's profit margin from its solar-panel business very low?
Mr. Katayama: Japan has talked about renewable energy in the context of global warming, but the government has so far implemented few concrete policies to promote it. We built our [new] plant in Japan expecting domestic demand for solar power to grow. But the gap between the actual demand and our capacity is making our domestic operations less profitable. We've also tried to export more solar panels from Japan, but the yen's strength since the financial crisis has made us less competitive overseas.
WSJ: How are you coping with the yen's strength?
Mr. Katayama: We need to change the way we manage our businesses so that foreign exchange movements won't affect us as much. The basic idea is that, whenever we see markets where demand is sure to expand, we'll try to build solar-cell plants there. Our solar panel manufacturing plant in Sicily [a joint venture with Italian utility Enel SpA and STMicroelectronics] is scheduled to start production in November. Despite the excessive inventories in China, at least that plant in Italy won't be affected by the yen's strength. We will continue pushing that strategy of producing locally in each market.

U.S. Treasury Holders Grin and Bear It

JULY 26, 2011   THE WALL STREET JOURNAL


The U.S. government is flirting with default on the world's most important risk-free financial instrument: Uncle Sam has issued or guarantees 55% of all triple-A-rated bonds, according to Nomura. But despite dire warnings by some policy makers during another weekend of stumbling debt-ceiling negotiations, most markets continue to snore at the threat. Why?
First, most investors still don't believe even a fractured U.S. Congress would be stupid enough to force a default. Several days remain to secure a deal, and there will be wiggle room to prioritize payments and avoid a default for a short while after that. Perhaps as importantly, most of the biggest holders of Treasurys have little choice but to wait out any uncertainty. And that isn't just U.S. banks that are pushed toward owning them by capital rules and the Federal Reserve, which owns $1.63 trillion of Treasurys after its latest quantitative-easing program.
[DEBTHERD]
Take China. It held at least $1.159 trillion of U.S. Treasurys at the end of May, about 26% of the total held by foreigners, and would be the biggest loser in a default. Beijing's hackles are raised. The Chinese government has repeatedly expressed its displeasure to the U.S., and Secretary of State Hillary Clinton's trip to Shenzhen is under a cloud. There are also signs that China is starting to find new places to invest. Analysis by Standard Chartered Bank suggests that in the first four months of the year, China sharply reduced the share of new reserves allocated to Treasurys.
But, like other big holders of U.S. debt, it has no incentive to do anything that would damage the value of its investment. And it has few other options on where to park the bulk of its cash. The key lies in the mainland's continued reliance on an export-driven growth model, supported by an undervalued yuan. China's trade surplus is shrinking, yet it was still $46 billion in the last quarter. And in order to keep the yuan stable against the dollar, China's central bank still has to buy up every cent that enters the country.
Once it has those surplus dollars, the options for investing them anywhere other than U.S. Treasurys are limited. A debt deal in Europe is good news on that front, but the sovereign-debt market remains fragmented, meaning there is no comparably liquid, high-quality euro bond available. The market in Japanese government debt is huge, but a move by China into yen in 2010 sparked an irritated response from a Tokyo ever concerned about the value of the currency.
A statement from China's reserve managers last week pointed out that markets for oil and gold were too small and volatile to house reserves.
With the main U.S. creditors in no hurry to exit, the yield on Treasurys remains low, with the benchmark 10-year note at 2.97%. Arguably, what U.S. leaders need is a market response to force them into action, just as a market slump made them rethink their decision to vote down the Troubled Asset Relief Plan during the financial crisis.
But big holders of U.S. debt have little incentive to sell and risk destabilizing the market. And Beijing, in particular, remains hamstrung by its reliance on the U.S. consumer to help drive its export industries—and Washington's debt pile to provide a home for its burgeoning reserves.
Write to Tom Orlik at Thomas.orlik@wsj.com

2011年7月27日 星期三

CIC's assets grew by 23% last year

27 July 2011   FinanceAsia


China Investment Corporation’s assets under management grew by 23% to $410 billion in 2010, and its profits by 24% to $52 billion, according to the sovereign wealth fund's 2010 annual report, released yesterday.
The $135 billion international (ex-China) portfolio returned 11.7%, the same as in 2009, after CIC reduced its cash holdings, increased direct investments and further diversified the portfolio. The international portfolio has grown particularly swiftly from an initial $21 billion in AUM in 2008, with the help of capital injections from the government.
Last year, in the international portfolio, CIC cut cash holdings to 4% from 32% in 2009, boosted equity and alternative investments to 48% (from 36%) and 21% (from 6%), while fixed-income remains almost flat at 27% (it was 26% in 2009).
The SWF added a large number of asset classes and instruments to the international portfolio in 2010, including credit and interest-rate products, US large-cap equities, emerging-market equities, commodity index products, and futures and options. The number of investment portfolios doubled compared to 2009.
CIC has also increased its allocation to alternative investments, such as private equity, real estate (Reits in particular), infrastructure and direct investment. Most of its direct-investment projects highlighted in the annual report are in the resources and utilities industries. 
Geographically, the SWF remains heavily focused on North America (41.9%), with the remainder invested in Asia Pacific (29.8%), Europe (21.7%), Latin America (5.4%) and Africa (2.1%). These figures remain almost flat from the previous year, the exception being that the Africa allocation has more than doubled from 0.9%.
The fund says it has increased its allocation to emerging markets by investing in local-currency bonds and Asian sovereign debt, and making changes to its Asia ex-Japan and Europe equity portfolios and its energy and mining stock holdings.
In terms of the industry breakdown of CIC’s equity portfolio, the top three sectors are financial (17%), energy (13%) and materials (12%). 
At the end of 2010, third-party mandates accounted for 59% of CIC’s international portfolio, the same proportion as last year. However, the fund says it is continuously improving its internal investment capability and has added new proprietary portfolios, such as US government debt, euro-denominated bonds, a Xinhua-FTSE enhanced portfolio and a global large-cap value equity portfolio. 
But this does not necessarily mean the size and number of investment mandates issued will decrease, as CIC is reportedly applying for a new fund injection of up to $200 million this year.
As Shanghai-based consultancy Z-Ben Advisors notes: “The sheer size of new assets that CIC will be required to manage if it receives another injection will require a considerable degree of outsourcing for the foreseeable future, opening up a host of opportunities for asset managers.”
CIC earlier this month appointed Li Keping, former vice-chairman of the National Council for Social Security Fund, as its new chief investment officer, replacing Gao Xiqing.

2011年7月26日 星期二

Competition Takes Off in Asia's Budget-Airline Market

JULY 22, 2011   the wall street journal


Asia's budget-airline market is getting increasingly crowded, as AirAsia expands and other players, including Qantas, ANA and Lion Air, move in. Who will be left standing? Hong Kong Bureau Chief Peter Stein discusses with Andrew LaVallee.
Competition in Asia's budget-airline market is heating up as rival carriers raise more money and launch services to take on Malaysia's AirAsia Bhd., the undisputed heavyweight of low-cost flying in the region.
A decade ago, AirAsia was the upstart, bringing the no-frills airline model to Asia after it succeeded in Europe and the U.S. Although some doubted it would work in Asia, where many residents don't earn enough to fly, AirAsia took off. Now Asia's other carriers are fighting back more aggressively.

Flying on a Budget

Take a look at key players in Asia' budget-airline market.
Mick Tsikas/Reuters
Airlines such as the Philippines' Cebu Pacific have raised hundreds of millions of dollars over the past year to expand their fleets, while several of Asia's biggest flagship carriers have announced plans to start low-cost carriers in recent months. Singapore Airlines Ltd., Thai Airways International PCL and Japan's All Nippon Airways Co. have all unveiled intentions to back new budget carriers recently.
Last week, the low-cost Jetstar Airways unit of Australia's Qantas Airways Ltd. said it will spend $500 million on its Singapore operations by buying seven additional aircraft by year's end and will add 40 weekly flights by then.
Analysts aren't convinced all the efforts will be successful in a crowded market. Still, the success of AirAsia and Asia's other big low-cost carriers has proven that the budget-airline model can earn money in Asia. This has given AirAsia's rivals more confidence and fueled an aggressive push by the best-funded among them to grab as much of the Asian-Pacific region as they can.
"The demand for air travel will grow further," said Rusdi Kirana, president director of Lion Air, Indonesia's largest airline, which is waiting for delivery of 134 new aircraft. Although new carriers will emerge, "we believe that with our strong presence we will be able to face the competition as we have in our 10 years of operation," he said.
The battle for frequent frugal fliers in Asia—home to more than four billion people and the world's fastest-growing economies—is expected to keep rates low and traffic growth high in the region and possibly decide the leading global airlines of the future. In the five years to 2014, the number of people flying in Asia will rise by 360 million to one billion, according to International Air Transport Association estimates.
While many details of the new budget carriers are still unclear, ANA-backed Peach Aviation is expected to start flights by March 2012, with fares on short-haul international routes targeted at 50% below current prices.
Singapore Airlines' new budget airline is expected to handle medium- and long-haul routes starting sometime over the next year, while Thai Airways is expected to start its low-cost carrier by the second quarter of 2012.
AirAsia says it believes the market is big enough for a few large competitors—but it intends to fight hard to remain on top.
"We opened up a huge lake of demand in Asia. People wanted to travel but couldn't afford it," said AirAsia founder Tony Fernandes. "We estimate that we could have up to 500 planes."
The no-frills-flight model was first attempted in a big way in Asia by AirAsia. Back when it first took off as a budget carrier a decade ago, it had to struggle with regulators who were suspicious of a newcomer and hoping to protect their state-run flagship carriers. Using publicity, politics and a bit of pushiness, Mr. Fernandes has now become a big dog of the Asian skies. AirAsia now has a fleet of 100 planes and earlier this month placed orders for an additional 300.
[ASIAAIR]
As flagship carriers target the market with new budget offerings, Mr. Fernandes is fighting them the way he used to be bullied as the up-and-comer. Last year, AirAsia poked fun at low-cost carrier Tiger Airways—which is about 33%-owned by Singapore Airlines—after Tiger announced a spate of flight cancellations by running an advertising campaign saying "If Tigers were meant to fly, they would be born with wings."
Mr. Fernandes criticized Tiger's management as "a bunch of white guys" in one interview, triggering an accusation of racism from Tiger.
Since Singapore Airlines announced plans to launch another budget carrier in May, Mr. Fernandes hasn't been shy about saying in the media and through his Twitter account that the state-owned carrier was making a mistake.
He is also planning stock listings in Thailand and Indonesia to help finance his growing empire, and once his plane order comes through he will have one of the biggest budget fleets in the world. AirAsia also plans to create new hubs in Vietnam and the Philippines, and it has started the airline AirAsia X to focus on longer flights.
But AirAsia isn't the only one building a bigger fleet backed by a big war chest. Cebu Pacific raised more than $600 million last year that it will use to expand its fleet. The company, which had only 200,000 international passengers in 2005, expects to carry three million this year.
"I know I am going to be one of the survivors. I think others will struggle," said Lance Gokongwei, president and CEO of Cebu Pacific. "Low-cost carriers will always grow market share at the expense of traditional carriers," he added.
Other low-cost carriers that might be raising money on the stock market include Lion Air and India's IndiGo and Go airlines, analysts say. IndiGo placed an order for 180 Airbus aircraft at the Paris Air Show late last month, valued at more than $15 billion at list prices.
Indonesia's state-owned carrier, Garuda, ordered 25 new planes at the air show, 10 of which were scheduled to be used by its low-cost arm Citilink.
Some analysts say it will be difficult for any new competitors to catch up with the industry leaders. While those backed by full-service flagship carriers may have easy access to capital and management, their high-end brands and experience can actually end up being a liability in the cut-throat, low-cost carrier business.
"These businesses require very different management styles. Just because you are good at one does not mean you can do the other," said John Rachmat, analyst at Royal Bank of Scotland Asia Securities in Singapore. "The successful budget carriers have already found their own niches and strategies, so it will be very difficult for a newcomer to break in."
"We wouldn't be getting into this if we didn't think it was going to be a profitable venture," said Nicholas Ionides, a Singapore Airlines spokesman. "We see this as a largely untapped new market."
—James Hookway and Yayu Yuniar contributed to this article.
Write to Eric Bellman at eric.bellman@wsj.com

Google+ Pulls In 20 Million in 3 Weeks

JULY 22, 2011   THE WALL STREET JOURNAL


When Google Inc. launched its Google+ social-networking site three weeks ago, executives handed out sailor hats to the hundreds of employees working on the project, symbolizing their year-long journey to that point.
So far, the sailing has been mostly smooth. On Wednesday, Web-traffic watcher comScore Inc. estimated Google+ has had 20 million unique visitors since its launch, including five million visitors from the U.S. A Google spokeswoman declined comment.
Google's rapid growth spurt on Google+ suggests that people are hungry for more social network options, WSJ's Jen Valentino-DeVries reports.
ComScore, whose estimates are based on a "global measurement panel" of two million Internet users, similar to the approach Nielsen uses to measure television ratings,doesn't have data on the number of minutes people spent on Google+.
Still, the growth of Google+ has impressed observers because access to it is by invitation only, meaning people can join only if a current member invites them. And the company hasn't yet marketed the service to the more than one billion monthly visitors who use its search engine, Gmail and other services.

Journal Community

Google+ lets people share comments, articles, photos and videos with various "circles" of friends or contacts, or they can share content publicly with any userwho wants to view their posts. Eventually, Google plans to incorporate features of Google+ in its other services, such as its YouTube video site.
"I've never seen anything grow this quickly," said Andrew Lipsman, vice president of industry analysis at comScore. The only other site that has accumulated as many new visitors in a short period of time is Twitter in 2009, he said, "but that happened over several months."
[GOOGLE_web]
The new data follow comments by Google CEO Larry Page last week that Google+ had more than 10 million users.Mr. Page said Google+'s traction was evidence that there are "more opportunities for Google today than ever before."
Of course, Google has a long way to go to reach the scale of Facebook Inc., which has more than 750 million users, and Twitter Inc., which has more than 200 million registered accounts.
With Google+, Google is aiming to match rivals like Facebook, which used personal information posted by its members to create a multibillion-dollar advertising business that lets marketers target specific demographic groups or people with certain interests. Google also hopes the service can become a home for brands and celebrities.
The data Google obtains about people's interests could also help it change the way its Web-search engine works. Sites in its search results could potentially be ranked based on what users and their friends like or find useful, Google engineers have said.
Reuters
A screen shot of the Google Plus social network is shown in this publicity photo.

Google+ also has unique technology, such as a "hangouts" feature, that lets people do "video chats" using their computer webcams, speaking to numerous friends simultaneously. The company plans to include Google+ in its suite of online software for businesses.In addition to adding numerous features over time, Google will eventually allow software developers to create "social" games and other applications that would run on top of Google+, similar to Facebook's successful "platform" for applications, people familiar with the matter have said.
In an email to investors Tuesday, Barclays Capital equity researchers said that "given positive initial traction from users we believe Google is now better positioned to compete and integrate social cues across its products than before, which could drive increased relevancy in search going forward."
Even some privacy advocates who lambasted Buzz, Google's prior social-networking effort, have lauded Google+. "The product has been designed to make it easier to share with one group of your friends while retaining some measure of privacy with respect to your family, coworkers or other groups of friends," said Peter Eckersley, a senior technologist at privacy-advocacy group Electronic Frontier Foundation, in an email.
But Mr. Eckersley added: "Google+ won't be as good for protecting your privacy against Google or against governments or lawyers with the power to compel Google to turn over your information."
Ben Hopper, a 29-year-old photographer in London who joined Google+ just after it launched, said "it feels a little empty right now" compared with Facebook, where he has more than 4,000 "friends." But he said that he "needs to be everywhere to show my photography," and if Google+ becomes integrated with Gmail, Google's email service, "for me it will have the upper hand."
Write to Amir Efrati at amir.efrati@wsj.com

2011年7月23日 星期六

Apple Eyes Bigger Slice of Chinese Market

JULY 19, 2011   THE WALL STREET JOURNAL


Apple is seeking to broaden the iPhone's availability in China by offering it through the largest mobile carrier, while a prominent Chinese government newspaper shut its investigative unit amid a clampdown on the media. WSJ's Jake Lee and Alex Frangos discuss.
Apple Inc. is getting closer to offering the iPhone through China's largest mobile carrier, state-owned China Mobile Ltd., giving the company access to hundreds of millions of new customers.
The effort is Apple's latest move in the risky Chinese market, which could play a central role in the company's growth plans.
Apple, like other American companies, is walking a tightrope in China's state-managed economy. It has long used Chinese factories to assemble its gadgets. But recently, Apple has begun targeting China's growing consumer class, opening its first retail stores and marketing its products, from Mac computers and iPad tablets to its iPhone.
Apple's role in China will expand greatly if China Mobile begins offering the iPhone. The iPhone has been available in China through the country's second-largest carrier, China Unicom (Hong Kong) Ltd., since 2009. But China Mobile, which is the world's largest carrier, has 600 million subscriber accounts, compared with fewer than 200 million at China Unicom.

Apple in China

See a timeline of Apple's moves in China and how they parallel decisions at home in the U.S.
Still, many challenges face Apple, such as government technical requirements that phones use an unusual wireless Internet technology, and the huge market for gray- and black-market electronics, where users can easily buy modified iPhones from overseas as well as fake iPads.
Tim Cook, Apple's chief operating officer, last month visited China Mobile's offices in Beijing. Both companies declined to comment on Mr. Cook's rare visit, but the carrier confirmed the two companies are in talks about the iPhone. An Apple spokeswoman said the Cupertino, Calif., company's strategy is to offer the phone to as many carriers as possible.
Based in Cupertino, Calif., Apple has historically focused on its home U.S. market, with the Americas region generating 38% of the company's $24.7 billion of revenue in the March quarter. But Apple is again expected to post strong China sales Tuesday when it reports earnings for its June quarter. Indeed, China is already Apple's fastest-growing region in terms of sales, despite the fact that the company has opened only four Apple Stores in the region.
Apple's push into China comes relatively late, a timing issue that has its costs. Other companies, from Hewlett-Packard and Dell to Nokia, Samsung and Motorola, have long been investing in China's booming mobile and PC markets. Apple faces strong competition from these companies, which already enjoy healthy brand recognition, as well as from other firms such as HTC, Huawei and ZTE. The latter two are making inroads with inexpensive smartphones that sell for less than $150.
Over the past decade, China has become one of the world's most important consumer markets because of its sheer size and fast-growing economy, which surpassed Japan this year to become second in the world. Luxury brands like LVMH Moët Hennessy Louis Vuitton have reported a boom in demand. China overtook the U.S. as the world's biggest car market in 2009.
Each day, tens of thousands of people stream through Apple's quartet of stores. Apple's revenue from Greater China, including Hong Kong and Taiwan, nearly quadrupled to just under $5 billion for the six months ended March 26 from a year earlier, though the region still comprises less than 10% of overall revenue.
Apple's strategy in China so far has been to maintain its prices—and profit margins—by targeting upscale shoppers. It doesn't discount and in some instances Apple gadgets cost more in China than in the U.S.
The iPad tablet starts at 3,688 yuan ($570) in China, compared with $499 in Apple's home market.
Both the iPad and the iPhone 4, which costs 5,999 yuan in China without a contract, would be a luxury for many Chinese consumers. The average household income was 12,076 yuan in the first half of this year, according to China's national statistics bureau.
Getty Images
People queued up at an Apple store on May 6, in Beijing.
It's unclear whether Apple will try to target a broader range of Chinese customers, many of whom prefer to buy prepaid phones. Mr. Cook said in an earnings call in March that Apple "wanted to understand the market and understand the levers there."
Despite its popularity, Apple still has a tiny portion of the Chinese computer market. It is fourth in the smartphone market, with about an 8% share, partly due to its October 2009 entry into the Chinese market.
Apple's retail stores in China have more than 40,000 visitors per day—four times the average traffic in their American stores. Apple Chief Financial Officer Peter Oppenheimer said earlier this year that the company's existing China stores had both the highest traffic and the highest revenue on average of any Apple stores in the world.
But the company's existing China stores sit in some of the richest districts in two of China's most affluent cities. As the number of stores grows it could be difficult to match the performance they have had so far.
Overall, China represents a big—and relatively untapped—opportunity for Apple.
"China has the potential to become the second largest and perhaps even the largest market [for the company] over time," said Shaw Wu, an analyst with Sterne Agee in San Francisco.
Apple is getting closer to offering its iPhone through China's largest mobile carrier, state-owned China Mobile, further opening a vast market and spurring what could be the next growth catalyst for the technology giant. WSJ's Yukari Kane has the exclusive story on digits.
The iPhone is likely to be offered through China Mobile in the next 12 months, analysts said. The timing of when the iPhone will arrive at China Mobile partly depends on whether Apple decides to offer the device for the carrier's homegrown technology standard, TD-SCDMA, or wait until the carrier rolls out a fourth-generation network called TD-LTE, which China Mobile has been testing in select cities.
The company faces growing competition from smartphones running on Google Inc.'s Android software.
The company's fifth and sixth Chinese stores are expected to open in Shanghai and Hong Kong in the coming months.
One typical Apple user in China is Jessie Cui, a 30-year-old in Shanghai who bought her first Apple desktop computer in 2003. She was so impressed by its design that she bought a Macbook, an iPod, an iPod Shuffle, an iPod Touch and an iPhone. "I want something different from what most people are using," said Ms. Cui, who is now eyeing an iPad.
—Yang Jie contributed to this article.
Write to Loretta Chao at loretta.chao@wsj.com and Yukari Iwatani Kane at yukari.iwatani@wsj.com


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