Apple's $50 Billion Dilemma in China

you know, to butter up to China. Wasn't But few US companies depend on China's fourteen trillion dollar economy like Apple, and the company has made a series of moves that critics say bowed to the country's totalitarian government, including removing an app for Hong Kong's residents that displayed the movement of local police. Today. In the show, Bloomberg editor Alistair bar breaks down Apple's dilemm Can the company keep selling in China without losing its soul? A, Ma, you're listening

to Decrypted? Stay with us? Elly? How's it going? Hi? I'm good? Do you want to introduce yourself. Yeah, I'm Alistair bar I'm an editor on the Tech team in the US. I want to start a conversation today at the very beginning, maybe about a decade ago, when Apple first started selling the iPhone, and it started selling the iPhone in China, tell us about the relationship that Apple's had with the country. It's been unprecedented, i would say

for a US company. So iPhones are super super popular in China, and they became super super popular relatively quickly, but especially around two thousand four fifteen timeframe, when Apple made a bigger iPhone and it came out in gold, and it was it was a status symbol, and it was happening just a time when China was was really becoming a lot wealthier and people were emerging out of poverty, and there was a massive, huge middle class, and it was a super cool status symbol to have an iPhone.

It was way ahead of most other phones in the world. So China really really embraced it, and they sold hundreds and hundreds of millions of these these phones. Okay, so that was fine for the first few years. China didn't seem to have a problem with Apple, but the company has gotten into Daisy Year situations over the last few years. So selling a fancy gold iPhone in China wasn't particularly controversial.

But now Apple is a services company, so they have a new Apple News Plus service, for instance, that's not available in China at the moment. They have the iTunes store, they have the Eye bookstore, the bookstore, and those things have either never been in China or they were blocked

pretty soon after they launched. So Apple, instead of just making gadgets, is now providing information over the internet, just like Google or Facebook has done in a slightly different way, but it's still in the eyes of China, that's still something that is a threat for sure. And that gets us to the recent controversy over an app called hk app. Yes, this is a basic mapping app that shows Hong Kong on your phone and it shows users where large amounts

of police are so that they can avoid trouble. That's according to the developer, So tell us what happened. So originally this is in late September. H k map is submitted to Apple's App store, and this is a typical process. Developers wait for Apple to decide whether to let it in the store. It's a super big deal if they get let in the store. So initially it was rejected because of technical issues like like how it access payments

and some other things. The developer then redid the app, re submitted it again, and this was in early October, and Apple then objected it for helping users evade law enforcement. We wrote that story up for sure, because that that had very very large political overturns and a lot of people are complaining about it on Twitter, and then we were on Apple to find out why and whether they were going to change their mind. Basically, Apple then went back on that and approved the app and led it

into the App Store. And then soon after that, the People's Daily, which is the communist government newspaper they is shoed a an opinion piece which was really highly critical of Apple, and they they it was quite ominous and they said, it's, you know, we we were not sure what Apple's intentions are here. They may they may be helping people break the law, and so that in China, that that type of signal is basically the Chinese government

coming down in you really hard. So very very soon after that, Apple Paul pulled the app again and so that that confluence of events really kind of proves that Apple basically did that just because the Chinese government wanted it gone. You know, I'm taking a look at the screenshot of HK Map and it it kind of looks like Ways, the traffic app that we use here in the States. Um, can you tell me a little bit

more about that. Yeah, So the developer actually made that comparison on Twitter, and and our Apple reporter Mark German interviewed the developer as well, and his his point is that, you know, Ways is a mapping app and it can be used for many many different purposes. You can use it to avoid police speed cameras, which in a way is avoiding law enforcement too, but that the Apple still allows that into the app store, So that that was

a major question, well was Apple's reasoning. So Tim Cook actually sent an email to Apple's staff about it, and yeah, his reasons we're pretty concerning. Really where where basically Apple took the side of the Hong Kong authorities and they were saying that the they had credible evidence from the Hong Kong authorities that the app was being used, um for malicious purposes to target Hong Kong police, and really that that went down very very poorly because they really

didn't provide any evidence for that. Um. He also said that the app was being used to break laws, but they didn't really say what laws were being broken. And no one, no one that I've read, has actually managed to find a law that has been broken. Michaels of that, We'll be right back saally before the break. You walked us through this debacle surrounding the app h k app.

But it hasn't been the only way that Apple seems to be appeasing the Chinese government censors recently, so late lately, Apple pulled the Taiwanese flag emoji from the latest version of the iPhone software that came out. Basically, if you were in Hong Kong or Macau, it's very hard for you to send a Taiwanese flag EMODI to someone else in mainland China. That was already the case that you could you couldn't send it um, so that that caused some people concerned, probably not as big as the Hong

Kong map issue, but another another good example. And then back in two thousand seventeen, a really really big one was the Apple removed VPN apps from the app store all of them, and there were lots and lots of those apps, and that was a really very common way for people in China to get around the Great firewalls. So if you wanted to check what was on Twitter, you fired up one of these VPN apps and it spoofed your location and it gave you access to Twitter

and even Facebook to some degree. So China really really cracked down on that and Apple basically got rid of them all from the app store. That was that was a real major one. And then the one that I think is super super interesting. We didn't report it unfortunately, that BuzzFeed did and over the weekend. So Apple has a new TV streaming service that's a bit like Netflix. I've seen the commercials for it. Yeah, it's all over

the place. Yeah, so they're really pushing that hard. About a year or so ago, when Apple was wooing the creators and of these TV shows that they're going to stream online, they basically asked some of these creators not to portray China in a in a poor light. And Eddie Q, who's kind of the number three guy Apple, was the one delivering that message. So that one especially

is particularly disconcerting. I think It happens kind of a lot in Hollywood, where China provides a lot of financing to movie studios, so they have to be super careful. But Apple likes to think of itself as being different. It stands up for ideals and freedom of speech and privacy and things like that. And you know, in China right now, this this this episode shows that it is probably not happening. And of course this isn't just about the tech companies, and it's also not just about Apple.

It's also about the NBA. The NBA example is super, super interesting. So the general managers the Houston Rockets tweeted support for the Hong Kong protesters, and there was a swift response from the Chinese government after that. The Chinese National TV broadcaster basically halted broadcasting any of the NBA games. And the market there is huge for the NBA, about half a billion viewers, and that's a lot of merchandizing, that's a lot a lot of advertising, and you know,

all that stopped very very quickly after that tweet. I guess these Western companies that want to sell to China do have to play this very delicate dance that gets them into these controversies increasingly more so probably, I guess one argument is to say, and certainly this is what free speech activists would say, it's just not worth it to sell your soul to China. But if iPhones were to get banned from China, that would be catastrophic for

Apple's business. Yeah, it would be huge. The revenue that Apple gets from Greater China, which is China, Hong Kong, Taiwan, is over fifty billion dollars a year, and that the market there is super super valuable. But it's also very fickle. So when when the Chinese government is unhappy with Apple, bad things happen, probably indirectly. A really good example of that is with Huawei, which is China's national champion when

it comes to tech companies. And so the US really cracked down on Huawei roughly about a year ago, something about a year ago. Soon after that, in the in the next quarter, Apple's iPhone sales in China they didn't do very well, and Huawei's sales rose quite a bit. And and so nothing over was ever said by the

Chinese government and anything like that. But the theory is that basically, either there was a national outpouring of support for for Huawei, or the Chinese government was sending a subtle message to everyone, do not buy iPhones by Huawei phones.

So there's a real there's a real impact if Apple has to keep the Chinese government happy, because that was a little taste of what could happen if things continue to go bad, right, I wonder if Apple has a little more leverage then it thinks though, because it's such a big employer in China. Yeah, that's that is a really really good point. Almost all iPhones were assembled in China.

At least a million people are hired to do that, and so if Apple suddenly couldn't sell hundreds of millions of phones in China, then then some of those people would lose their job or because of the trade war and and tariffs and things like that, if Apple decided, oh, why we're gonna make We're going to make all iPhones in Vietnam and India, that would be really devastating to the Chinese economy. And then then in the Chinese government would not want that to happen at all. So there

is certainly a two way street going there. So if Facebook and Google and all these other Internet giants that have been trying and failing to get into China. What do you think their executives are thinking now as they're

watching this unfold? Maybe relief. So even just a year ago they were desperate to get into China, now it looks like it would be a huge headache for Google and Facebook if they were in China and they would be there making the same terribly difficult decisions that Apple is making right now, and especially for someone like Google with the famous motto do know evil? You know, if they were in China right now and they were they were serving sensored search results in an environment like this,

that would be extremely hard to support. And I think they would get a big backlash from customers but also from from their employees very much. So, if you believe in the ideal of freedom of information, do you think it's even possible for American companies to act ethically in

China today? I think that's very, very different. Called So when I think about Apple in China today, I go back to the famous four ad that around you in the Super Bowl for Apple Macintos computers, and back then, the ad showed totalitarian dictator on a big screen saying nasty things and everyone's standing there straight, I'm looking scared. We are wanted resolved. And then a woman appears and

smashes the screen. And the whole message was that Apple was going to fight totalitarian um and you'll see why four will be like four. And now fast forward many many years later, Apple is in China, is having to deal with this government and and really it can be seen to be being forced to enable a form of totalitarians. Alista Bart, thanks for coming on the show today, my pleasure, Thank you for having me. This episode of Decrypted was produced by me Ao, Sean Wyne and Too for Foreheads.

Our story editor is in vander May. Francesco Leavie is the head of Bloomberg Podcasts. We'll see you next week.