Interfax China is citing a source at China Mobile Research Institute who says the president of China Mobile recently visited the institute and discussed his company's talks with Apple.
Wang Jianzhou said China Mobile has had three rounds of negotiations with Apple chief Steve Jobs, chief operating officer Tim Cook and other company officials over 18 months.
The most recent round broke down over China Mobile wanting direct control of the App Store, including collecting payments.
According to the source, Wang said the same credit card payment system that works elsewhere in the world won't fly in the Chinese market where users pay with deposits made in their mobile phone accounts.
That alone would necessitate China Mobile playing a part in administering the App Store in China, he claimed, but Apple disagreed.
"Wang said China Mobile should operate the application store itself in order to maintain its advantage," the source said, adding that China Mobile is in the midst of making its own strategy for selling smartphone applications.
The first round of negotiations is said to have broken down when the mobile operator rejected Apple's request for between 20 and 30 percent of revenues from iPhone users.
Then, Apple offered to sell the company each iPhone at $600 under the stipulation that China Mobile subsidize iPhone service bundles offered to customers, but the carrier balked, the source said.
Analysts have separately predicted a Chinese iPhone launch in recent months, and Apple had even posted a job listing for an iPhone Quality Assurance Engineer in Beijing.
The Interfax China story termed the App Store disagreement as the "third and final round of negotiations", but it is unknown whether the two companies are still in talks to bring the iPhone to the country.
China Mobiles is the largest mobile phone operator in the world, claiming over 415 million subscribers as of last June.