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Apple takes a fresh bite into China's market

China Mobile on Friday finally starts selling iPhones on its massive network, with focus now on just how big a slice Apple can carve out of the booming Chinese smartphone market.

The initial signs are positive: China Mobile, which has the world's biggest network of mobile phone users, told CNBC this week that it had received 1.2 million pre-orders for iPhones.

(Read more: Apple-China Mobile deal a 'watershed' moment: Tim Cook)

The iPhone also goes on sale during a key gift-giving season with Chinese New Year just around the corner.

In a sign of just how important the deal with China Mobile is, Apple CEO Tim Cook has been in Beijing this week.

On Friday, Cook and China Mobile Chairman Xi Guohua were at China Mobile's flagship store in Beijing where a small group of customers received signed iPhones and posed for pictures.

Ten customers received signed iPhones from both Apple CEO Tim Cook and China Mobile Chairman Xi Guohua.
CNBC
Ten customers received signed iPhones from both Apple CEO Tim Cook and China Mobile Chairman Xi Guohua.

Analysts say they are watching how users respond to the packages offered by China Mobile as this is likely to be key to the success of the Apple-China Mobile deal unveiled less than a month ago.

"Most of these [smartphones] are packaged with two-year plans and what we're seeing, at least in the initial indications from China Mobile, is that they are packaging significant amounts of data with their 4G network," Chris Lane, senior research analyst at Sanford C. Bernstein in Hong Kong said.

"Now that's important because with 4G, you use more data. So if you're a customer and you're looking at buying an iPhone from (China) Unicom, (China) Telecom or (China) Mobile, it's not just about the device and the price, it's about network speed and the total cost of the data you're going to use," he added.

(Read more: Cramer: Apple's China deal much bigger than Wall Street thinks)

Chinese regulators last month granted wireless licenses to the three big Chinese carries, removing a key stumbling block to a deal between China Mobile and Apple.

China Mobile has an estimated 760 million subscribers on its network, while China Unicom and China Telecom have around 280 million and 185 million users respectively.

China Mobile shares rose 0.8 percent in Hong Kong on Fridayto their highest level in over a week.

Stiff competition

Still, Apple, which has wooed consumers around the world with its iPhone, faces stiff competition from Chinese rivals as well as South Korean tech giant Samsung which has made significant inroads into the smartphone market in recent years.

According to research firm Canalys, Samsung had a 21 percent share of the China smartphone market in the third quarter of last year, while Apple held fifth place with a 6 percent share.

"Apple is under pressure, yes they have great products but markets are saturated and so they will have a difficult time growing," Andy Hargreaves, senior research analyst at Pacific Crest Securities told CNBC on Wednesday. "The reality is that not everyone can afford an iPhone."

The premium, 16-gigabyte, 5S model is priced by China Mobile at 5,288 yuan, or about $874.

Others argue that in brand-conscious China, the Apple iPhone is likely to go down well with China Mobile users.

Apple's Cook told CNBC this week that the firm sold more iPhones last quarter in Greater China than ever before.

(Read more: Samsung creams Apple in third-quarter smartphone sales)

"I think Apple's going to do well in China," said Adam Hewison, president and chief strategist at investing website INO.com. "There's a certain cache about luxury brands in China – they love the BMW as a luxury car, they like Burberry. All the top brands do well and Apple is going to be in that category."

For China Mobile Chairman Xi , there was definitely an element of cool about owning an iPhone.

"Before [the Apple deal] I used the cellphone of another brand, now I've switched to an iPhone," he told CNBC this week. "I'm very thankful to Tim Cook that…he gave me one of the first iPhones made for China Mobile and it's gold – the most popular color among youngsters."

— By CNBC.Com's Dhara Ranasinghe; Follow her on Twitter @DharaCNBC

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