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Apple Pay faces obstacles for adoption in China

With Chinese financial institutions playing hardball, Apple's new payments system may not make its way to the country anytime soon, according to MarketWatch.

Apple Pay is facing a tough time trying to expand to China. James Martin/CNET

Apple is apparently bumping into multiple roadblocks in its attempt to bring Apple Pay to China.

The iPhone maker is trying to work out agreements with certain banks and financial institutions, a People's Bank of China official said, MarketWatch reported Monday. However, Apple has not yet "acknowledged regulators," the official added, and "it's unclear whether the product meets the government's requirements."

Unveiled in October in the US, Apple Pay allows iPhone 6 and iPhone 6 Plus owners to pay for items on the go via the wireless NFC (near-field communication). technology. Apple has been busy trying to gain support for the service among US banks, retailers and other businesses. Meanwhile, China is the largest smartphone market in the world and represents a signficant opportunity as Apple Pay tries to expand globally. But negotiating with the Chinese government and state-run businesses can be a delicate and difficult process.

Apple's efforts to bring Apple Pay to China involve two of the country's key players -- state-owned bank-card service UnionPay and e-commerce company Alibaba. Apple needs to play nice with either or both in order for Apple Pay to work in the country. That's because UnionPay has an NFC-based system that lets China Mobile and China Unicom customers pay for items via their phones. And it's the country's only channel for NFC transactions; thus UnionPay sets the fees paid by retailers.

Apple's discussions to tap into UnionPay's system have stalled, those close to the companies told MarketWatch.

Chinese smartphone users have also been able to pay for items using Alibaba's Alipay service. Apple had worked with Alibaba to develop a fingerprint technology reportedly with a goal of building a mobile payments system, according to an anonymous Alipay employee. Such a system could circumvent UnionPay's service, thus allowing Apple to move forward with Apple Pay. But Alipay hasn't yet found a way to work around UnionPay's monopoly on NFC-based transactions.

Apple Pay is also up against technical and regulatory issues in China.

The chips in the iPhone don't fully comply with a technical standard demanded by Chinese central banks, a source told MarketWatch. Further, the Chinese government wants Apple to build a data center in mainland China to store all of the country's customer data related to Apple Pay transactions. The aim is to "prevent data leaks" and ensure that the system continues to run if problems occur at an overseas data center. Such a demand isn't surprising as China has grappled with US technology companies in the past over data security issues.

Apple didn't immediately respond to CNET's request for comment.