Why Apple’s China Disaster Is Worse Than You Think

china

The worst thing that could possibly happen to Apple has now happened: The company has run afoul of the authoritarian government of China. 

Gatekeepers of the world’s largest and one of the fastest growing markets for every product Apple makes, the Chinese Communist Party-controlled government has decided to stop and reverse Apple’s growth in the country.

Here’s what’s going on.

Cult of Mac was the first blog or publication to suggest that recent press attacks against Apple could indicate a larger campaign by China’s government to “screw” Apple

That piece two weeks ago was based on a blistering report on CCTV, the world’s largest TV network, and one that happens to be owned and controlled by the Chinese government. In the report, Apple was singled out for discriminating against Chinese customers with both its iPhone replacement policy and its one-year warranty.

(In fact, Apple’s policies in China are identical to those in the United States.)

The government OR CCTV were even caught orchestrating a campaign to get prominent celebrities to bash Apple on Chinese social media.

Then, China’s People’s Daily newspaper, which is the world’s biggest “commie rag” (literally the official newspaper of the Chinese Communist Party), with a circulation of nearly 4 million, published a front-page hit piece on Apple headlined “Defeat Apple’s Incomparable Arrogance,” slamming the company for its “empty and self-praising” response to the CCTV piece.  

Both those articles were light on substance and fast and loose with the facts, but both specifically tried to paint Apple as a company deliberately singling out Chinese customers for ill treatment. The aim of both reports was to seriously damage Apple’s reputation and get the Chinese public against Apple.

This week, China’s State Administration for Industry and Commerce, claiming to be responding to “widespread reports” that Apple’s warranty is “hurting” Chinese customers, called for “subordinate agencies all across China” to crack down on Apple. Then, China’s General Administration of Quality Supervision, Inspection and Quarantine ordered Apple to double its warranty to two years.

Now, a Chinese film studio, called the Disney of China, and which was the first known studio founded by a Communist party, according to the Wikipedia entry, is suing Apple because it claims Apple has been selling pirated copies of its animated films on iTunes.

This is all very bad news. China is already the company’s second biggest market, and it has just begun to make inroads there. Much of Apple’s soaring stock valuation in recent years has been based in part on an expectation of massive growth in China.

But, as Business Insider put it, “It might be time to start dialing back expectations for Apple in China.”

And if you’re going to lower expectations for Apple in China, you have to lower them for Apple as a company.

What’s Coming Next

So far, China’s Apple fans are siding with Apple and slamming the Chinese government for a clumsy, obvious campaign to harm Apple’s business in the country.

But that’s not going to help in the long run. Apple’s growth depends entirely on people who are not currently fans.

And the Chinese government still has many ways to block and harass and abuse Apple.

Chinese courts are not independent, as they are in, say, the United States, but controlled by the Chinese Communist Party and the Chinese government. They are notoriously responsive to initiatives by the central government.

Apple faces, and may increasingly face (now that rivals in China will sense new opportunities for victory in the courts), all kinds of patent, copyright and trademark lawsuits.

Apple is currently facing several patent, trademark and copyright suits in China, including one company that seeks to have Siri banned in China because they claim to have invented it, and another against Siri from a university. Both are pending.

What if Chinese courts actually make Siri illegal in China? 

Apple is even being sued by a detergent company that makes a laundry detergent called Snow Leopard, which is also still pending.

Beyond lawsuits, Apple may no longer find itself under the protection of Chinese government agencies in the future.

Remember when the Chinese government shut down 22 fake Apple Stores? That action was taken by the very organization that is now calling for a crackdown against Apple. Future fake Apple stores may be allowed to grow and thrive.

They might even sell fake Apple products, such as the brand-new iPhone 5S clone.

Why the Chinese Government is Suppressing Apple

There have been many theories published about why the Chinese government is attacking Apple.

My own theory is that abusing and suppressing Apple solves many problems by the Chinese government.

For starters, Chinese companies like Huawei and ZTE are on the rise in a major way internationally, as well as inside China. Both these companies are closely aligned with the Chinese government. By knocking down Apple, the Chinese government makes life easier for domestic rivals.

Second, Apple is revered in China by many fans. The Chinese government has historically attacked foreign influences when they got too popular in China.

Third, the Chinese government has no doubt been looking for a way to retaliate against the US government, which banned the purchase of Huawei and ZTE networking equipment, citing close ties to the Chinese government and military and a threat of espionage through that equipment. Targeting Apple both hurts America and also helps the very companies that were harmed by the Congressional mandate.

Whatever the reason, it has become clear that the Chinese government intends to hurt Apple’s business in China. They certainly have the power to do it.

And that changes everything for Apple’s longterm future.

(Picture courtesy of Global Post.)

Related
  • Exo

    What goes around, comes around.
    That’s what arrogant Apple gets for abusing Chinese child slaves.

  • bdkennedy

    Apple has always said they don’t care about market share. They didn’t need China before and they don’t need China now.

  • bdkennedy

    The factories are the ones that hired them and when Apple found out, they corrected it. And if you have shopped at Walmart, Target or any other place that supplies merchandise from China lately, that makes you a hypocrite.

    What goes around, comes around.
    That’s what arrogant Apple gets for abusing Chinese child slaves.

  • Robert X

    What goes around, comes around.
    That’s what arrogant Apple gets for abusing Chinese child slaves.

    You Sir, are an ignoramus.

  • Exo

    The factories are the ones that hired them and when Apple found out, they corrected it. And if you have shopped at Walmart, Target or any other place that supplies merchandise from China lately, that makes you a hypocrite.

    What goes around, comes around.
    That’s what arrogant Apple gets for abusing Chinese child slaves.

    Well, be that as it may, the fact remains that Apple in their greed and quest for total control, have everything produced in China, and what is even worse, keep all their money offshore so as not to pay any US taxes — in fact, for all intents and purposes, they are not a US company anymore (except for a few over-payed CEOs).

    This is one of the reasons why nowadays I buy Samsung mobile phones, at least some of their models (especially the first ones of any given model line) are made in US-ally South Korea.

  • yiyayo110

    I dunno but I think you guys(US Government) started first with HuaWei’s case so….

  • vaio1990

    Chinese economy deserves to crash

  • chrisrenaldi

    this will pass and the Chinese people will prevail – they are smart and getting smarter by the day – they will do exactly what the government tells then not to do – bad press is good press especially over there! so no worries Apple will continue do be Apple and it future has never been brighter – so relax dust devil reporter who states the obvious but has not the insight to see the big picture.

  • vaio1990

    $AAPL is being criticized in China, is this an attempt to revenge the USA for blocking access to Huawei and ZTE from entering the US market?

  • macstuffdaily

    I wonder how things would go down, if Apple just completely moved out of china. I mean shutdown all retail stores, App Store and iTunes, sold its stake in Chinese companies and moved its whole manufacturing chain to NA. Never to set foot in China again. Beside the obvious, you wouldnt be able to buy Apple products for like a year.

  • nikster

    None of this made very much sense before, but when you mentioned ZTE and Huawei… bingo, you’ve got a winner there.

    This is simply retaliatory trade action, nothing more. The Chinese are saying lets see how you like it if we make life a little harder for the biggest company by market cap in the USA.

    Apple isnt traditionally buying politics in the USA but that might very well change now. Apple needs China to be friendly so chances are the lobbyists are already running around in DC seeing what can be done. China knows that politics in the US are run by corporations. Smart move.

  • MrsCleaver

    “The worst thing that could possibly happen to Apple has now happened…”

    Sheer hyperbole! A slow news weekend does not justify this kind of “journalism.” It’s more the kind of “story” churned up by North Korea. Even on Cult of Android it would be egregious to print such economic fear-mongering.

  • media_lush

    this story is so lamentable that it falls under troll-bait

  • kaboomnik

    Agree with nikster. This is purely about retaliation for US treatment of ZTE and Huawei.

    Disagree strongly with yiyayo110. There is no doubt that the US has a strong case against ZTE and Huawei. These companies have (for years) stolen US intellectual property and there is no doubt whatsoever the Chinese government uses hidden features in their products for espionage.

  • Steffen Jobbs

    Oh, what’s the big deal? The same thing happened to Google’s search engine in China and they’re still doing pretty good. I can’t blame the Chinese government for not letting foreigners take over everything. They’re a hell of a lot smarter than the American government who’ll just practically give America away for a few bucks. I don’t know why Apple is always the target for authors and “Apple is doomed” generation. Apple is giving a lot of Chinese citizens jobs, so there is some mutual interest. Besides, the Chinese consumers likes Apple products and I don’t see them just giving up on them because the government doesn’t like it. The Chinese government has to take some stance, but it probably won’t be all that easy to enforce it. But I don’t think Apple is the only foreign company to take this sort of heat from the Chinese government. Apple is no more doomed in China long-term than any other foreign company. I’m sure China wouldn’t be too happy if we prevented Chinese goods from being sold in America.

  • djcolley

    I did not know that Mike Elgan was writing science fiction.

  • Jdsonice

    Hey why not? Thanks to Walmart and its culture of selling chinese crap cheap China is mad that we Americans are not buying stuff from their spy companies. It is time to stop buying stuff from China and restart the manufacturing industry in the US. And stop buying crap from Walmart.

  • davidmac27

    Sounds like there may be more to this story than meets the eye…

    In the LA Times today:

    http://www.latimes.com/news/nationworld/nation/la-na-adv-todd-singapore-20130331,0,2238591.story

  • Steven Quan

    Mr Elgan, you forgot about the story of the movie star who the Chinese Government was telling to send out anti-Apple propaganda through his text messages but later recanted when people realized the text messages were coming from the Government itself.

    This problem is easily rectified. Do like Microsoft did when they were found guilty of having a monopoly with their operating system. Grease the palms. Chinese leaders want money, take some of that $140B wad of cash and share some of it. It’s no different from the U.S. All the politicians want the money, give it to them so they’ll stop.

    Apple is the most valuable company in the world, they are one of, if not the single biggest employer in China, if Apple isn’t sharing the wealth more, it’s not surprising the Government would go after them.

  • technochick

    “The worst thing that could possibly happen to Apple has now happened…”

    Sheer hyperbole! A slow news weekend does not justify this kind of “journalism.” I.

    This is typical Mike. And he’s rarely right about his doom and gloom

  • Exo

    Personally, I think South Korean government should follow US government lead and protect its companies against foreign competitors. Furthermore, I suggest SK government discourage its many celebrities from publicly using Apple products.

  • eldernorm

    Second try….

    OMG….. OMG…. Mike is right. Apple is DOOMED…..DOOMED I say. After all, the Chinese government ALWAYS acts reasonably and honestly!!!!!! DOOMED I say.

    Just a thought /s

  • snookasnoo

    There is of course a lot of silliness in this article in order to get page views. Mention Apple in the subject line and boom there you go. It’s a weak and lazy approach. What is of course real is that anything in China not under the control of the government is attacked and that includes Android with Google services and Linux except for Red Flag Linux.

About the author

Mike ElganMike Elgan writes about technology and culture for a wide variety of publications. Follow Mike on Google+, Facebook and Twitter.

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