Interview with a Chinese iPad smuggler

today was iPad day in Hong Kong, and we were just about 100 feet and 1 floor up from one of the largest resellers of iPads (with the longest lines) in the entire city. Something just didn’t seem right. [caption id="attachment_3083" align="alignright" width="276" caption="Photo from neonpunch.com"][/caption] One of the men looked up quickly when a gaggle of teenage girls cautiously turned the corner. They gave a quick nod over toward him and he jumped up immediately. He walked over and they handed over plastic shopping bags with large Apple logos on the side–two bags per girl, along with the receipts. In exchange each girl got $100HK (about $12 US) per bag. The girls promptly blended into the crowd of other shoppers and the man was busy stuffing boxes into his luggage. He then rolled his suitcase back to the Starbucks where it was stacked with other luggage, looking quite like a traveller ready to go on a journey. “Dude” I whispered to my friend. “These guys are iPad smugglers.” We had seen the mules in the line. Folks wearing masks, sunglasses and hats who were very shy when it came time for photos. People kept turning around, hiding under newspapers, even opening umbrellas to shield us from our cameras. The Bloomberg reporter told me “those kids are Triad members (Chinese mafia) who will be selling their iPads later today in Mongkok”. With that bit of warning we were both a bit hesitant to talk to the guys in the Starbucks, fearing they may be the ringleaders of some violent Ax Gang from a hard life council flat in rundown Kowloon. “I wonder if they could get me an iPhone 4” I thought to myself. The man came back from the girls with eight bags filled with iPads. His partner pulled out a legal tablet and made some check marks. The page was filled with dozens of check marks. 16gb, check, 32 gb, check, 32gb 3G, check, check. Of course, looking over to our table was probably just as confusing for the two smugglers. We were frantically busy uploading video of the iPad launch to Youtube and had two Mac laptops, a mifi, an iPhone 3G, a Sony HD Camcorder, a Canon Digital SLR and a dried out danish. They noticed us noticing them or we noticed them noticing us (I can’t remember which came first) and finally I just had to break the ice. “Do you like the iPhone 4” I said with a smile, sliding over to get a better look. “Yeah, it’s great” he said with barely a hint of an accent. “The screen is great”. So we started chatting about the phone and the screen and whatnot. He got it in China he said, but it was originally from the UK. I finally got around to the meat of the matter and said “pretty crazy day” pointing over to the reseller nearby. “Yea, I’m going to be here for hours” “Getting an iPad for your friends?” “More than a few friends. I have $2 million RMB I have to spend today (about $300,000 US). My boss sent me down here and we’ve got dozens of people in line. There are five other guys in other parts of Hong Kong doing the same thing.” “Good business I guess”. “Yea, but it’s not our main business. We have a factory in China making (this and that). That’s our core business, it’s just this opportunity arose and the boss wanted to take advantage of it. It’s much cheaper for us to get the iPads here in Hong Kong than flying over to the USA and bringing them back.” “Are those people in line friends of yours?” [caption id="attachment_3084" align="alignleft" width="300" caption="Photo from neonpunch.com"][/caption] “No, we hired a ‘hat gang’. One guy is the top hat and he goes out and recruits all the kids. We pay them $100HK per iPad, and some of the kids will go to another store later today to get in line again. Better than them doing nothing all Summer just goofing around.” Just then a runner came down, a skinny kid in a crooked oversized baseball hat, and reported to the other man some news. After he left I returned to our conversation. “Was that the ‘top hat’?” I asked. “Ha,” he said. “The top hat is VERY big and watching the kids closely.” Each kid was holding essentially $10,000 HK in cash ($1,200 USA) so the top hat was to make sure the kids didn’t get any funny ideas. “How are you going to get these into China?” where the tax rate is about 20% on imported items like this. “Not my problem” he laughed with an expression that said ‘thank god’. “I’m to take these to a shipper in Hong Kong later today and he will deal with that. You know China–a bit of money to the right person can open up a channel” he said. “Only about 50% will go to China. The other 50% will go to folks in Hong Kong who couldn’t be bothered to wait in a line.” “I actually have two cars down in the parking garage right now.” he said. “When the first is full it will head over and I’ll take the second one later tonight. I think I’m going to be here for five hours or so.” “All your men are at one store. Why don’t you use the other store (which had significantly shorter lines) just around the corner” “That store opens the box before they sell it to you, ripping the plastic and making the iPad less valuable on the resale market”. His phone rang and he hurried to answer it. After a few words in Chinese he hung up and turned back to us. “The order has changed. Originally it was the 16gb wifi–the cheapest one that we were supposed to focus on, but now the boss says get whatever we can. I guess it’s selling out pretty well all over Hong Kong.” He then turned to his friend who had to communicate the order back to the gang leaders and their underlings still in the line. We got up and said our goodbyes. It was a pretty fascinating look at the process of smuggling, from the outsourcing of the lower end jobs (line sitters) to the handoff of the significant risk (the cross-border entry). With a markup of about 100% for the street price in China, this guy was going to bring in about $200,000 US in profits for just a couple days work sitting in a Starbucks. Maybe we’ll see him again on Friday when the iPhone 4 goes on sale. Here is the video Neonpunch.com shot showing many of the mules who were waiting in line. ]]>