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Home » Apple’s balance in China is complicated during Xi crackdown

Apple’s balance in China is complicated during Xi crackdown

In less than a year, China has turned the world’s largest internet sphere upside down, plunging its biggest players from Alibaba to Tencent in freefall with a storm of regulatory measures to loosen their grip on data and content. Still, Apple Inc., the largest of them and an American icon, sailed almost unscathed.

It can change. Over the past year, President Xi Jinping has launched a broad offensive against Big Tech, leading the dismantling of digital walls around platforms like WeChat that stifle competition. China’s highest court last month effectively granted consumers the right to sue Apple for alleged abuse of market power – a setback for a company whose App Store pioneered the walled-garden model of data centralization. of users and control of the publication.

Xi’s campaign threatens a delicate balance Apple has cultivated in China, a market that underpins much of its $ 2.4 trillion value as the top producer and one of the biggest consumers of iPhones . Apple is one of the most profitable US players in China, a country that has shut out rivals Google from Alphabet Inc. to Facebook Inc., navigating between increasingly rigid demands from Beijing and anti-Chinese sentiment. in his country.

Regulators have so far focused on reducing the influence of China’s biggest tech companies, fearing that their immense and growing influence could pose a long-term threat to the Party. But the powers that be have never hesitated to pursue American interests, and tensions with the United States are high.

“You just had to play differently to adapt to Chinese market conditions,” said Nicole Peng, vice president of mobility research at Canalys. “He will have to be very careful not to fall into any monopoly activity. This is something the Chinese government will be watching closely.

Reduced production target

Closer scrutiny of Beijing would introduce another major element of uncertainty for a company already struggling with shocks in the supply chain system. Apple is slashing its 2021 iPhone 13 production target by 10 million units as its suppliers struggle to secure enough components, people familiar with the matter said this week.

For now, the world’s most valuable company is seeing its software operations thrive in China. The iPhone App Store – over which the company has almost total control and charges a typical 30 percent cut in all payments – is the quintessential closed ecosystem. Epic Games Inc. has sued Apple this year for monopoly behavior, ending a long-standing complaint from developers around the world that the iOS model unfairly squeezes creators with its so-called Apple tax. South Korea passed a law in August requiring Apple and Google to open their mobile stores to different payment options. US lawmakers are calling for similar measures.

In September, the Supreme Court of China gave the green light to a case filed by an individual consumer alleging that Apple’s application fees are unfair, allowing it to pursue similar lawsuits. Apple declined to comment on the decision or for this article. The company claims that the App Store fees it charges are justified by the security and peace of mind it provides to users, while providing developers with a global showcase for their apps.

“Apple stands on the opposite side of consumers and developers,” said Wang Qiongfei, an attorney with Hangzhou-based law firm Kinding representing Jin Xin, the plaintiff. “Due to the closed monopoly system he created, Apple can increase the price as it sees fit.”

Dependence on China

It’s hard to overstate Apple’s dependence on China, where partners like Foxconn make most of the world’s iPhones and a consumer market that generates about a fifth of its $ 275 billion in revenue. annual. The local App Store has generated more revenue than its US counterpart in four of the past five years. Consumer spending on the iOS platform topped $ 9.1 billion in China in the first half of 2021 alone, up 25% from the previous year, according to App Annie.

The country’s internet population topped one billion this year and it is already the largest market for games and electric vehicles in the world, which makes it critical to Apple’s present and future ambitions.

That’s part of why Apple is making sure to stay on the safe side of Beijing. It runs a series of social and educational programs, employs millions of people in its supply chain, and awards coveted contracts to Chinese companies like Luxshare Precision Industry Co. and BOE Technology Group Co. It empowers a company backed by the ‘State to manage all its local data and comply with censorship requests. This has helped protect him from the wider assault on tech giants, observers say.

At a time when China seems determined to train model citizens, Apple has acted like one for years, but only after a few initial clashes with the authorities.

State media, which generally report in the government sanctioned sense, lashed out at Apple as early as 2013, when chief executive Tim Cook was forced to apologize after state broadcaster CCTV criticized the company’s customer service standards. A year later, the same outlet accused the iPhone of presenting security risks. In 2017, Beijing investigated antitrust complaints relating to Apple’s dominance in smartphones. Meanwhile, pressure from regulators has also forced Apple to shut down key services like iTunes Movies and iBooks, which remain down.

Since agreeing in 2017 to host Chinese user data with a state-owned company in Guizhou, the Cupertino, Calif.-Based company has shown itself to be a willing partner in Beijing, complying with demands for censorship and censorship. withdrawal and resisting pressure from Washington to dissociate its activities from China.

“These actions by Apple have earned it some favor from Beijing,” said Doug Fuller, associate professor at the City University of Hong Kong.

Compliance

In the first half of 2020, Apple complied with 94% of Chinese government user requests for information about devices – the highest in the world for any country with more than a handful. That’s up from 82 percent in the United States, 81 percent in Germany and 48 percent in Australia. Many concerned “tax and customs investigations,” he said in his latest transparency report.

Last year, the company purged more than 140,000 unlicensed games from its Chinese App Store and now requires developers to enter a valid license registration before their game can be released, according to Niko Partners.

The company “claims that respect for privacy and human rights are its guiding principles – something that is difficult to reconcile with its current approach to China,” said Nicholas Bequelin of Yale Law School Paul Tsai China Center.

The Internet crackdown in Beijing, which is entering its 12th month, is already having an indirect impact on Apple. Restrictions on games like a three-hour weekly time limit for minors and slowing approvals of new games will weigh on revenue growth. But there are longer-term grounds for concern.

The administration has attacked tech companies in part because officials have become concerned about their potential to destabilize society, given the wealth of data they collect from hundreds of millions of users. Apple’s data is considered valuable because its users tend to be early and more affluent users.

The same sprawling, China-centric supply chain that underpins Apple’s success is also another potential area of ​​concern for regulators.

Apple’s manufacturing partners of Foxconn, also known as Hon Hai Precision Industry Co., and Catcher Technology Co. at Luxshare and BOE, collectively employ millions of people to assemble the various parts that go into iPhones, Macs and iPads. The blue-collar jobs they offer in factories are seen as lucrative for those with no higher education, such as migrant workers looking to make a living in the city for their families back home.

Yet numbers and lack of visibility into the supply chain are also a risk. Social unrest linked to the growing wealth gap is seen as one of the main threats to stability, and Apple’s partners, including Catcher and Hon Hai, have already faced large-scale protests, especially after the suicides of several Foxconn employees in 2016 brought attention to what critics say the working conditions were inhumane.

Beijing has once criticized its own tech companies for overworking. In Apple’s case, its army of assembly line workers – who often earn less than the U.S. minimum wage – is key to maintaining its 40 percent profit margin.

To date, Apple’s stance and strict content controls are okay with Beijing, with the company imposing restrictions and removing apps as authorities demand it. But the iOS ecosystem itself could call for scrutiny.

“Apple, as a distribution platform, will need to adhere to content rules and make sure they don’t use anti-competitive practices,” said Rui Ma, founder of Tech Buzz China.

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