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Apple's iPhone 5 Takes on Cheaper Rivals in China

Feng Li | Getty Images

Neither rain, sleet, snow, nor hail will stop Chinese Apple fans from getting their hands on the new iPhone 5.

Outside the company's biggest store in Asia, located in the popular shopping district of Wangfujing in the Chinese capital of Beijing, security was standing by as customers braved snow flurries and freezing temperatures to be one of the first in China to buy the latest version of the popular Apple handset. "I've always wanted to buy an iPhone 5," one early morning customer told reporters. "So I think it's worth it."

China is the largest market for Apple outside the U.S. In its last fiscal year, Apple generated about 23 billion dollars in revenues from the country and Apple products are seen as more than just gadgets in China — they're status symbols. The country, which is the world's largest smartphone market, is also key to Apple's future growth.

(Read More: Coming Soon: China's Growth Resurgence? )

"I feel happy and exhilarated to be one of the first to own the phone in China," new iPhone 5 owner Wang Zhiqiang said inside the store. Chinese people are willing to pay roughly $840 for a 16GB iPhone 5 — 30 percent more than in the U.S. — despite the average income in China being significantly lower than in America.

Those high prices, however, could also hurt Apple. According to IDC, Apple's ranking in the China market, where Samsung and Lenovo are top sellers, slipped to sixth in the July-September period. A crop of Chinese companies such as Yulong, which sells smartphones under the name of Coolpad, and Xiaomi are grabbing market share with their cheaper models. At a China Telecom shop, some home-grown branded handsets are on sale for $110.

(Read More: China Cracks Down on Doomsday Cult )

Apple is fighting back to keep its strong position in this fast-growing smartphone market. The iPhone's voice activated assistant Siri now speaks Chinese. Apple also sells iPhones through two mobile carriers, China Telecom and China Unicom. Unicom started taking online reservations for the iPhone 5 and received 300,000 pre-orders for the gadget in the first week, according to its official microblog on Sina Weibo, China's version of Twitter. Analysts though are hoping Apple will work out an agreement to sell the iPhone through the country's biggest cellphone operator, China Mobile, to get access to the Chinese carrier's 700 million users.

Despite the increasing rivalry with local players, Wang thinks Apple will continue to win over Chinese with its American ingenuity. He already owns an iPad and an iTouch. "I've always liked this brand because it's from America," he said.

Additional reporting by Juliana Yeh

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