Apple souled out to China

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Apple designed in California and sold in China. Is it now Apple souled out to China? Apple is often cited as being a technology brand with a purpose and profiitable. It is unique in mobile phones, computers, tablets and set top boxes. It has a throw back model to the pre-Windows age of computing. It is vertically integrated.

Quisling

They make key software for their computer. They make the hardware. And in the case of every device except the Mac, they make the key components. It does all this without owning the means of production.

Apple doesn’t own its factories. It owns some of the machines in assembly plants. But if a legal dispute broke out, it would struggle to get those machines out of a partner factory. It’s production volumes are so vast; this puts a further constraint on partner choice. Apple’s electronic components are made around the world:

  • Germany
  • Japan
  • Korea
  • Taiwan
  • China
  • USA

The device chassis, battery and assembly happens in China.

In software, Apple is reliant on two types of partners:

  • The open source community. iOS, macOS, watchOS and tvOS are all built on open source software. Apple takes them building blocks and innovates on top of them
  • The Apple developer community. Apple’s computers are nothing without software. On the iPhone about half the game developers are China based

The Apple difference

Their differentiator for the first thirty years or so was computing for non-technologists. Over time this has been articulated as:

  • Computing for the rest of us. Computers with expert product design that made them friendly in consumer eyes. This was to try and portray computing as an appliance or piece of consumer electronics. Brands as diverse as Sony and Cuisinart cited as inspiration. Critics of the Mac interpreted this focus on product design to call it a toy. They didn’t think that it represented ‘serious’ computing

  • Think different. Apple needed to keep a fraying customer base together. They came up with the brand anthem that highlighted the diverse range of users. This ranged from technologists and scientists to artists and creatives

  • It just works. It just works was initially used as a way to describe the intuitive Mac interface. My key attraction to the Mac was discovering thoughtful design at every aspect of the software. Even now, once you learn a keyboard short cut it works consistently in all software. In contrast, Ctrl + Q on Windows is inconsistent between some Microsoft apps

Apple extended this process from the iMac onwards, making it easier to:

  • Get online. The modem was in the iMac’s case. You plugged your phone line into the computer. You plugged the computer in and followed the software instructions. Apple even carefully curated high quality dial-up ISPs (internet service providers)
  • Set your email up
  • Get your address book on to your phone – something that became even easier with the iPhone
  • Get your music on to your phone or iPod

The pivot to privacy started back in 2003 with the launch of FileVault. It makes it easy to encrypt a hard drive partition, CD ROM or USB key. This was to help the Mac find acceptability within business. It also benefited consumers. Eight years later Apple launches the iMessage service which encrypts text, image and video messages by default. It also launched FaceTime video calling with encryption. Two years later, Apple builds Secure Enclave into the iPhone; encrypting the entire device. Over time, the technology moved from being business friendly, to consumer differentiator. It gave Apple clear separation from Google and Facebook. Privacy fitted into a Cook narrative about a company that promoted social good. This was part of the move to a post-Jobs Apple. One that thought social purpose was more than addressing the education market with high quality products. Tim Cook and Apple stood up for American civil rights and progressive ideals.

Concepts that in retrospect look rather naive when going into China.

Compromises in China

Apple has already given over control and cryptographic keys of its services in China. Apple users in China do not enjoy the kind of privacy and security protections of users elsewhere. Apple has not gone to the mats on behalf of users. Apple’s service offering has been severely restricted. Apple’s book offering had to be withdrawn. The app store is without whole categories of applications. Apple Music has a much reduced catalogue due to censorship. Check out Six times Apple gave in to China | Abacus for more information.

Compromises to China

The protests in Hong Kong shone a light on corporate kowtowing that has been going on for years. HKMap Live is similar to map / data mashups done for other protest movements. It plotted crowd sourced reports of police on a map.

The data offered is not granular in nature. It might give you a pointer if you commute is going to pop-up in the middle of tear gas and baton rounds.

This means that Tim Cook was gullible, or compromised when he made the following false statement about HKMap.live

“…we received credible information, from the Hong Kong Cybersecurity and Technology Crime Bureau, as well as from users in Hong Kong, that the app was being used maliciously to target individual officers for violence and to victimize individuals and property where no police are present.”

Tim Cook internal memo to staff

The problem is no one has come out and said in public what these instances were. Apple hasn’t provided any supporting evidence. One could guess that Apple’s calculus was that people can still use Safari to access the HKMap.live site.

But this comes on the back of Apple removing the Taiwan emoji from all iPhones using Chinese language input. That affects:

  • Chinese
  • Hong Kongers
  • Macau residents

Tim Cook has gone from progressive corporate citizen to Tolkein’s Gríma (Wormtongue). So what’s Apple’s pay-off?

Apple’s prospects in China

You could argue that Apple’s best days are behind it in China. WeChat has effectively built a smartphone OS inside its application. This has meant that the iPhone’s differientators and real world performance compared to Android are moot.

  • Domestic manufacturers are squeezing Apple and Samsung out of the market
  • Tablets are less relevant due to Chinese preference for large smartphones.
  • Apple TV is crowded out of the market by Tencent content deals.
  • The Mac is a niche product that Apple is likely to maintain

In the face of a changing political environment and rising Han nationalism; Apple is in decline. It’s a question of how fast, which means that Apple feels obliged to placate a mercurial Chinese state.

Apple’s prospects on Capitol Hill

Big technology companies under the magnifying glass by lawmakers. Apple doesn’t have the issues that Facebook has. But it did develop most of the tax avoidance measures now used by Facebook, Google and Amazon. And the one thing both Republicans and Democrats can agree on is that China is a bad actor that needs to be confronted. Apple sits nice at the intersection of these two issues. Tim Cook took a high risk gamble positioning Apple in political crosshairs – in the run up to an election. I guess like Mark Zuckerberg, Tim Cook is hoping Elizabeth Warren doesn’t get in.

This also offers other technology companies a unique proposition. Their lobbyists could throw Apple under the regulatory bus for commercial advantage. Amazon’s lobbyists managed to blunt the threat of Apple Books to the Kindle book store. Do you think they or Facebook won’t offer Apple up as the sacrificial lamb?

Thinking about trade specifically. Apple has already moved up to a third of iPhone assembly outside China due to the US | China trade difficulties. This leaves the rest of its products under threat:

  • From Chinese government action in the supply chain
  • From US government action against the supply chain

If you’re an American politician, Apple looks like a corporate Quisling. On the right wing, it acquiesces to Chinese government pressure, yet won’t help the FBI. On the left, it avoids its tax responsibility and kowtows to an authoritarian regime that wants to displace America.

Apple’s prospects with western consumers

One can understand why Apple has thought it could get away with Chinese practices. It was something that other companies do:

  • Nike
  • Tiffany
  • Dolce & Gabbana
  • Starbucks
  • Mercedes-Benz
  • Marriott
  • Cathay Pacific
  • Muji
  • Versace
  • Dolce & Gabbana
  • United Airlines
  • Swarovski
  • Gap
  • Google

Apple hasn’t had significant pushback or scrutiny of its Chinese practices. Unfortunately, Chinese government hubris, 愤青 (fenqing) and the NBA has brought Apple into sharp focus.

The HKmap.live app is just the tip of a China iceberg:

  • It has handed over all the cryptographic keys for iCloud services in China to the government
  • iCloud hosting in China has been handed over to a Chinese state-owned company
  • Apple has censored books and music on behalf of the Chinese government
  • Apple has got rid of whole categories of apps like VPNs at the request of the Chinese Communist Party
  • It has pulled the Taiwan flag emoji from many devices
  • It’s handing over data to Tencent that bundles IP addresses with URLs. Apple claims its technique protects privacy, unlikely from the Chinese government technologists. Given a wide enough data sets and enhanced interrogation, you can whittle it down
  • Apple has requested that content providers on its new TV service censor themselves – not to offend the feelings of 1.4 billion Chinese people. Guessing South Park won’t be making content for Apple TV+

This makes Apple look like a hypocrite.

The San Bernardino lawsuit looks less like a stand for privacy a la Edward Snowden. Instead Apple looks like it prioritises the interests of the Chinese government over the US.

There is a breach of trust for some Apple customers. Can you now trust Apple in other areas such as privacy?

  • How much of a threat would China have to make in order for Apple to hand over the keys to mail and messaging globally?
  • Or maybe just countries along the Belt & Road, which would include the European Union

What would China do?

  • Banning the sale of iPhones?
  • Banning Apple Watches in China?
  • Ban the sale of AirPods?
  • Spiking Mac sales?

Access to Apple’s global data would be an intelligence trove of kompromat. China wouldn’t be able to resist.

If you’re an Apple customer, you know Apple just isn’t cool. The trust in Apple’s privacy USP is blown. You can’t be sure what Apple won’t do to make China or other governments happy.

Western consumers are waking up to Apple having shattered an unwritten moral covenant, set by its progressive actions.

In trying to avoid hurting the feelings of 1.4 billion Chinese people, Apple has burnt the trust of everyone else. And most of those 1.4 billion Chinese people Apple avoids offending won’t buy an Apple product. Which doesn’t look that great when you’re a shareholder.

Apple and developers

Prominent developers like Maciej Cegłowski (founder of pinboard.in) have been active in supporting Hong Kong protestors. It has put Silicon Valley developers on the opposite side to Apple. Cook will realise that there will be Apple insiders who sympathise with the Hong Kong protest movement.

Taking the morality out of the equation for the moment, if you’re an Apple developer or employee; you know Apple won’t have your back. Why should you help them? Why would you help facilitate them use your open source code to build their products?

More information

Apple’s China Nightmare Just Got Even Worse | Forbes

Apple Told Some Apple TV+ Show Developers Not To Anger China | Buzzfeed News

How safe is Apple’s Safe Browsing? – A Few Thoughts on Cryptographic Engineering

Apple insists it’s totally not doing that thing it wasn’t accused of: We’re not handing over Safari URLs to Tencent – just people’s IP addresses • The Register

Apple’s decision to pull an app used by Hong Kong protestors shows how much it needs China – Vox 

Daring Fireball: Tim Cook’s Company-Wide Memo on HKmap.live Doesn’t Add Up

Apple in eye of China-Hong Kong storm | Digital | Campaign Asia

Apple ditches Hong Kong maps app as China expands ‘loyalty test’ – Nikkei Asian Review

Hong Kong Is the Latest Tripwire for Tech Firms in China | WIRED

Chinese online retailers slash iPhone prices for second time this year | Reuters

Apple’s spectacular $5 billion China black hole | Techinasia

Apple’s Sales Drop in China Means $5 Billion in Lost Revenue – Bloomberg

Apple in China Report 2017: A Deep Dive Into Apple’s China Troubles – China Channel

Apple Starts Selling their HomePod in China, a Very Tough Market owned by Chinese Vendors – Patently Apple

China retailers slash iPhone prices after Apple sales warning | Reuters

Apple China warning: US businesses could lose out – CNN

Apple Faces `Informal Boycott’ From China Consumers, BAML Says – Bloomberg

Apple’s China Problem : 12 Reasons – Counterpoint Research

Chinese Smartphone makers took advantage of Apple’s Out-of-Touch Pricing on iPhones & now Apple’s Supply Chain is Worried – Patently Apple

Apple Warning: Seven Charts That Show the Pressure on China’s Consumers – WSJ

Chinese Values Are Changing America – The Atlantic – China is transforming the US rather than the other way around