With 'Rioting' at New Hong Kong Store, is Apple's China Strategy Off-Track?

"Watching the Bird's Nest start to erupt was almost scary. The entire floor of National Stadium was filled with 2,008 drummers, all in silver robes trimmed in crimson. What did they portend? And would anyone still be able to hear after they were finished?"

That was the observation from Washington Post columnist Thomas Boswell about the opening ceremonies to the 2008 Beijing Olympics. It seems such xenophobic fears turn out to have an upside. It seems the kind of brand loyalty and excitement American companies can only dream about from their own US consumers, Chinese customers posses in droves.

On Saturday, Sept. 24, Apple opened the first of its wildly popular retail meccas in Hong Kong. The opening caused a minor "riot," fueled in part by the 300-some new Apple store staff who were whipped into a frothy lather just before the doors were opened (top). Apple, formerly criticized for idling (somewhat) its China strategy, appears to be stomping on the accelerator.

The brand's first Hong Kong store, which reportedly cost $20 million, is located in the tony International Finance Centre, a high-end business and commercial complex overlooking the waterfront in Central HK, and follows the new Apple store that just opened in Shanghai. It's a premium retail location in Hong Kong, to be sure, but in exchange for huge, marquee retail centers and luxury malls in China, Apple may have sacrificed a larger overall store expansion.

It wasn't supposed to be this way. In 2010, Apple predicted that by 2012, it would have opened 25 Apple stores in China. The new Hong Kong store was its sixth. Not this year, but total. If that doesn't seem like many measured against the $3.8 billion Apple says it took in from China sales in the third quarter of 2011, it's because it's not.

Apple's booming sales were through the brand's 900-odd agents and many of them were from, well, somewhere else entirely. Bloomberg recently reported that of the one million iPads in dosed in Q2 alone, only about half were from Apple or its official partners.

That's a real problem for Apple, and it's only going to become more of a problem. The brand recently announced that it would get the new iPhone 5 into the China market by December.

But with consumer enthusiasm in Hong Kong like this...

…there will absolutely be excessive demand from those unofficial suppliers for Apple products. When that happens, the increased demand will almost certainly incentivize counterfeit suppliers of Apple products and suppliers of counterfeit Apple products (of which we already know there are many). A flood of poor quality imitations has the potential to cause a crisis of brand confidence that could even spread to the few official Apple stores China has, causing Apple fans nationwide to question the brand for which they have so much loyalty.

Then again, Apple may have a whole different PR problem threatening to "pollute" its reputation in China.