27 Jul A Timeline of the Recent Problems for Apple in China
Apple has been facing some tough times in 2016. A large source of these troubles? China. New regulations and increased market competition have led to problems for Apple in China. These events prove that operating in China is difficult for all foreign brands, even the world’s most valuable company. Stories like this one is why our company devotes itself to providing our partners with smooth launches and operations in China’s tricky environment.
Back in March, Apple’s largest problem was the U.S. government. In wake of its refusal to provide access to the San Bernardino shooter’s iPhone, Apple stood by its customer data protection worldwide. Apple’s court filings claimed they have never built a backdoor into iOS for the Chinese government, and has never made “special accommodations” for China. This, coincidentally or not, is when Apple’s China troubles really began.
In April, China’s State Administration of Press, Publication, Radio, Film and Television (or SAPPRFT- we just wrote about them) ordered Apple to shut down their local iBooks Store and iTunes Movies operations. These services had only launched in September. This move was surprising, as Apple had operated relatively unimpededly in China for years.
Later that month, noted activist investor Carl Icahn sold all $53 million of his Apple shares. The reason? Concerns about intervention from China’s government. This came shortly after Apples worst quarterly earnings report in more than a decade, with steep declines in Chinese revenue. Apple’s China revenue dropped 26% year-on-year, or 32% compared to Q4 2015.
China’s government could “come in and make it very difficult for Apple to sell there… you can do pretty much what you want there”.
Next, China’s been facing a series of unfortunate IP protection events. In May, Apple lost exclusive rights to the iPhone name in China. Now, a Chinese company is legally permitted to produce handbags and other sorts of leather products, with the name IPHONE branded on its goods.
The following month, Apple took a tougher hit. A Beijing court ruled that the iPhone 6 and 6 Plus’s designs were too similar to those of a Chinese brand. Yeah, seriously. This ruling could cease the sale of these phones within Beijing city limits. While Apple is currently appealing the decision, halting iPhone sales would be bad news for Apple in China.
Why is this happening?
As the New York Times wrote when discussing the closure of iBooks and iTunes Movies, “there has been a limit to the success of American technology companies in China. Capture too much market share or wield too much influence, and Beijing will push back”. Basically, get too big in China and the government will probably stop you, for one of two reasons: protectionism or censorship. Apple’s iTunes and iBooks services directly compete with those of Chinese companies like Alibaba. However, most of Apple’s offerings, such as Apple Pay and the iPhone, have strong, direct competitors in China. If the government continues to favor local companies, Apple could be pushed out of the Chinese market and lose its once-formidable market share.
Of course, this also reflects China’s tight control over creative content. The government been cracking down on all sorts of foreign content, including mobile games. Blocking the iTunes Movies and iBooks store is just another tactic to prevent unwanted content from entering the screens of Chinese citizens.
Apple’s Comeback Tour
It seems that Apple is trying to win back China’s love. In May, Apple shocked the world by investing $1 billion in Didi Chuxing, China’s top ride hailing app. This move was a business decision- there’s a lot of money to be made in ride sharing in China- but also more than that. Apple’s seeing a decline in its Chinese hardware business and although software would usually be the way to keep making money in the market, China has been lashing out again Apple’s content. So, this is another way to stay ingrained into China’s tech scene
Just a week later, Tim Cook took a trip to China and met with the chief of the Ministry of Industry and Information Technology. A statement from the MIIT said that its chief, Miao Wei, complimented Apple’s “extensive collaboration” with China and expressed hopes that Apple would continue to expand its business there. Time Cook’s time spent representing Apple in China can largely be seen as a gesture of good will. By meeting with its top regulators, Apple is suggesting that it’s ready to play by China’s rules.