Apple’s earnings call on Tuesday yielded good news overall in terms of sales, but one inescapable issue came up again that will likely shape the company’s future on the international stage: The Great Firewall of China.
Based on the events of the last few days, we now know that even the biggest tech companyon the planet can’t put a significant crack in that impenetrable wall of internet censorship that gives the Chinese government ultimate power over all things internet — Silicon Valley “disruption” be damned.
On Saturday, Apple confirmed that it had removed a number of VPN apps from its China App Store in compliance with local law. At the time, the move was described by Apple as adhering to China’s rule of law, which intensified back in January with regard to VPNs that help Chinese users skirt the government’s tight control of the internet.
Nevertheless, the removal of those VPN apps prompted some to wonder if Apple was bowing to censorship in China, a particularly damning claim when you consider the kudos Apple earned for its stance versus FBI authorities regarding user privacy last year.
During the earnings call, Tim Cook pushed back on that idea, saying, “We would obviously rather not remove the apps, but like we do in other countries, we follow the law wherever we do business. And we strongly believe that participating in markets and bringing benefits to customers is in the best interest of the folks there and in other countries as well. And so we believe in engaging with governments even when we disagree.”
And there it is, the rare admission of powerlessness from the company many think of as the most powerful consumer tech operation ever.
Everything we know about Apple historically tells us that bowing to this kind of censorship is antithetical to its core values.
Given that admission, the question then becomes obvious: Should Apple even try to continue to do business in China under these conditions? Everything we know about Apple historically tells us that bowing to this kind of censorship is antithetical to its core values. Apple can’t compel China to loosen its censorship grip through legal or financial means, plus its market share there is steadily shrinking in the face of Android-powered competitors.
The problem, of course, is you can’t just walk away from a population of over 1.3 billion potential users.
“China represents an important and growing market to Apple. Since Apple is a business and not a political organization, I believe they will continue to work with the Chinese government and operate there,” says Ann Lee, an expert on China who is an adjunct professor of economics at New York University, and the author of What the U.S. Can Learn from Chinaand Will China’s Economy Collapse?
No matter what, if Apple continues to do business in China, it will be forced to figure out any number of ways to keep scaling that Great Firewall, even if it promotes a wide range of inclusive, freedom-loving, aspirational values elsewhere.
The Chinese competition
That nickname isn’t just western slang for China’s strict enforcement of internet censorship targeting mainland China citizens, it’s also the thing keeping some of biggest tech giants in the west at bay as China builds up its own, local tech behemoths like Tencent, Baidu, and Alibaba. Increased competition from local players, as well as difficulty deciphering some of the country’s unique consumer culture differences has led some foreign companies to scale downtheir attempts to crack the Chinese market. But Apple has remained steadfast in its efforts to profit in China, despite news back in May that its sales had fallen there by a whopping 14 percent.
Another clue as to how Apple plans to handle this data-ethics-dissonance was revealed in a comment made by CEO Tim Cook on Tuesday. “I see Tencent [the parent company of messaging app WeChat] as one of our biggest and best developers,” said Cook. “They’ve done a great job of implementing a lot of iOS features in their apps and we’re looking forward to working with them even more to build even greater experiences for our mutual users in China.”
By sticking closely to China’s guidelines for internet censorship, WeChat not only firms up its hold on the Chinese market, it also passively compels Apple to follow suit.
But that conciliatory comment can’t mask the stiff competition Apple faces from WeChat in China. And how WeChat operates is incredibly important to Apple. Anyone who’s been following the story of WeChat knows that it’s not just China’s biggest messaging app, with almost 900 million users, it’s also one of the most compliant companies in China in terms of working with the government to censor content. That censorship includes filtering certain terms (for example, Tiananmen Square massacre and Tibet) in private and group chats without user knowledge, and employing a URL filtering system in the app’s built-in browser.
By sticking closely to China’s State Council Information Office (SCIO) guidelines for internet censorship, WeChat not only firms up its hold on the Chinese market, it also passively compels Apple to follow suit if it wants to compete locally.
Perhaps the only reason Apple’s FaceTime and iMessage, which both use end-to-end encryption, aren’t in a stranglehold (yet) is because those apps simply don’t have as many local users as WeChat. Ignoring those cracks in the Great Firewall seems fine, for now.
But when it comes to letting Apple facilitate bigger rifts in the censorship facade via VPNs, that’s when the hammer comes down. And Apple has to accept it, or be forced out of China, something the Chinese government has proven it will do if its hand is forced, no matter the size of the company.
The one more thing …
To top it off, Apple relies heavily upon China-based companies to manufacture its products. With such massive investment in China, from production to consumer-facing interests, Apple is likely in it for the long haul.
“Keep in mind that millions of Chinese go overseas as students, tourists, and businessmen every year anyway so they will have access to Western content regardless of the restrictions on VPNs,” says Lee. “The Chinese government will likely reverse their restrictions down the road when the demand for outside information is strong enough.”
Whether Lee’s prediction comes true or not, any company hoping to penetrate the Chinese market would do well to pay attention to Apple’s example.
“We’re hopeful that over time the restrictions that we’re seeing are loosened because innovation really requires freedom to collaborate and communicate, and I know that that is a major focus there,” said Cook.
Hope. That’s what Apple is hanging its future in China on.
But just watch — some time in the future, when an unforeseen human rights issue in China becomes so urgent that Apple’s consumers around the world demand action from Cook, Apple may change its stance on China’s censorship policies. That change would come at a huge cost to Apple, though, and would impact the entire planet’s tech culture and business landscape for decades into the future.
In the meantime, whether companies like it or not, winning in China means learning to flourish in the shadow the Great Firewall, and accepting that any chiseling will parallel your fortune or failure. The wall is getting bigger every day.