China, Apple’s Second Most Lucrative Market, is About to Get Better For Developers With New Payment Options

China has quickly become Apple’s second largest market by revenue after the U.S. over the past year.

But it’s still a huge headache for developers, who must cope with piracy and poor monetization because credit penetration isn’t as deep among consumers there. It looks like that may be about to change.

The local Chinese version of Apple’s app store started accepting yuan today in addition to local bank cards from some of the country’s largest banks like China Merchants Bank, Industrial and Commercial Bank of China (ICBC), China Construction Bank and Shanghai Pudong Development Bank. Consumers will be able to recharge their accounts with in 50, 100, 300 or 500 yuan increments. The system, which is similar to adding a money to the balance on a mobile phone or transit card, does not yet support third-party transfer services like Paypal.

Before today, the only way a Chinese consumer could make iTunes purchases was through Visa, Mastercard and American Express and only in U.S. dollars, which left may Chinese consumers without a way to make legitimate purchases because credit penetration is lower in the country. This contributed to widespread piracy and fraud as Chinese consumers would get fraudulent credit card numbers to buy apps.

The base price Apple is setting for paid apps is 6 yuan or 94 cents (which is actually lower than the current exchange rate of 6.36 yuan to the dollar). Developers who want to price their apps at $3.99, $5.99 or $9.99 will get converted to 25, 40 and 68 yuan respectively. CocoaChina, which represents a large community of iOS developers in China and is backed by Disney’s Steamboat Ventures, expressed some skepticism that a base 6 yuan price will be attractive to consumers.

While the new payment methods will help, Chinese consumers aren’t used to paying for software and they may consider dozens of yuan simply too expensive, according to a blog post on the site, which is in Mandarin.

We’ve covered the issue of developing and marketing apps in China in an extensive review here. The market is extraordinarily promising. App-tracking service Xyologic estimates that 87.3 million iPhone apps were downloaded in China in October or about one-fifth of the U.S.’s volume in the same time period.

“For China — the sky’s the limit there,” Apple’s new chief executive Tim Cook said in the company’s last earnings call. “I’ve never seen so many people rise into the middle class who aspire to buy Apple products. It’s quickly become #2 on our list of top revenue countries.”

But many developers have had a hard time monetizing their work there. EA’s PopCap Games, which says Asia will contribute about 10 percent of the company’s revenue this year, has told us that it sees about five to seven pirated copies of Plants vs. Zombies for every single legitimate app it sells. Shainiel Deo, who is the chief executive of Fruit Ninja-maker Halfbrick Maker, said that half of the 70 million copies of its hit app in China are pirated, which led it to form a partnership with Chinese developer iDreamSky to create free ad-supported versions of the game.

Even free-to-play apps face piracy in China. While at GDC China, DeNA’s Mobage division project manager Sun Kang said that users trying to play their games for free was far and away the developer’s biggest problem in the country. According to Kang, its a common occurrence for players to use either stolen or hacked credit cards to purchase premium items DeNA’s free-to-play games, a practice that leaves the developer on the hook for bank chargebacks.

And then, piracy doesn’t always stop at apps and in-game purchases. Rovio’s Angry Birds is so popular that it has become “the most copied” brand in China, according to Peter Vesterbacka, a phenomenon that has given rise not only to millions of pirated apps but shops filled with fake merchandise, and even for a brief time, an unlicensed Angry Birds theme park.

PopCap Games, which also sees rampant piracy for Plants Vs. Zombies-related goods in China, has told us that piracy is a double-edged sword for the brand. While the company can’t earn revenue from fake goods, piracy does help spread awareness of the brand farther. Some pirates are detailed enough that when PopCap adds URLs to its official merchandise, fake goods start appearing with the addresses too, helping new consumers discover the game.