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iPhone5c_34L_AllColors_PRINT copyThe early rap on the iPhone 5C’s prospects in China focuses overwhelmingly on one aspect of Apple’s newest product – its price. The word prior to the 5C’s launch was that it was going to be the cheap version of Apple’s globally popular smartphone, making it accessible to new socioeconomic classes, especially in emerging markets. Apple’s announcement Tuesday that the phone will retail for $733 (4,488 RMB) in China frustrated these expectations. As one Hong Kong-based HSBC analyst put it, “it’s not cheap enough.” He’s right – this price point will undoubtedly impact this newest phone’s success and thus Apple’s ability to effectively compete in the Chinese market.

But Apple has bigger things than the 5C’s price to worry about in the People’s Republic. First on this list: the Silicon Valley giant is no longer the “it” tech company in the Chinese market. Sure, two years ago Apple was all the rage in China. Delays in the release of the iPhone 4S in January 2012 even inspired riots outside the company’s flagship Beijing store. Those halcyon days of insanely high demand for Apple products, though, have come and gone, and the company’s recent efforts to build-up in China – the decision to release the iPhone 5S and 5C simultaneously in the US and China and the rising likelihood that China Mobile, the world’s largest carrier, will finally offer iPhones – are likely too little too late.

What’s the cause of Apple’s fall from the peak of coolness in China? Xiaomi – a three-year old homegrown innovator already valued at $10 billion, roughly twice Blackberry’s worth, and with ambitions to radically reshape China’s technology landscape.

Apple launched its iPhone in 2007, a full three years before Xiaomi was founded and four years before Xiaomi released its first smartphone. While Xiaomi, whose name 小米科技 means Small Rice Technology, may have been a latecomer to the mobile game, it has wasted no time catching up. Indeed, Xiaomi’s smartphone sales volume has been so prolific that in August the company marked two major achievements: more smartphone sales in China than Apple and the highest selling single smartphone in the Chinese market, its Mi 2S. Xiaomi’s executives celebrated these developments by announcing an increase in their projections for 2013 smartphone sales from 15 million to 20 million. If these projections prove prescient, the company will have realized a 178 percent increase in annual smartphone sales in 2013 alone.

The rapidity with which Xiaomi has been able to go from non-existence to mobile market success is shocking. Even more shocking, perhaps, is one of the major drivers of such success – its aura. Put simply, Xiaomi is out Apple’ing Apple. The Chinese phenom launches its products in elaborately choreographed productions, maintains strict controls on the avenues through which its products are sold, and builds up anticipation in advance of its sales by releasing its phones in batches of 100,000 to a few hundred thousand (which have sold out in as quickly as 90 seconds). Its CEO, Lei Jun has cultivated a Steve Jobs image, down to the black shirts and jeans. The result has been a buzz about Xiaomi not at all dissimilar from the excitement that Apple inspired during its Jobs-led renaissance in the 2000s.

Has the price of Xiaomi’s phones played a role in its success? Absolutely. Xiaomi’s latest generation flagship smartphone, the Mi 3, retails for prices starting at less than $330 (1,999 RMB), less than half the price of the iPhone 5C. Xiaomi also recently launched “Red Rice,” a cheaper version of its flagship series, which starts at $130 (799 RMB). The combination of these mid-market prices with Xiaomi’s up-market image has fueled the company’s rise.

The extent to which Apple has fallen in China shouldn’t be exaggerated. The company’s China revenues continue to grow and its newfound focus on the Chinese market – particularly its push to establish a relationship with China Mobile – will help drive further increases in sales.

These facts, though, belie the severe drop in Apple’s momentum that has accompanied Xiaomi’s rise. In the weeks leading up to Apple’s iPhone 5C and 5S launch, Xiaomi released the Mi 3 and Red Rice, unveiled a smart TV, and hired away Google Android executive Hugo Barra to lead its international expansion efforts. In other words, while Apple was preparing to unveil only slightly cheaper and marginally upgraded versions of its iPhone, Xiaomi went to market with entirely new products and began to set its sights on distant shores.

An Apple rebirth in China is always possible – it has already proven to be a resilient technological wunderkind with multiple lives.  Barring a Jobs-like resurgence, though, Xiaomi’s rise could very well mean Apple’s demise in the Middle Kingdom.

Editor’s Note: contextChina is a Seattle-based media company following the growing impact of China on the Pacific Northwest across business, technology and policy. You can follow contextChina on Twitter @contextchina.

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