Why Apple’s China Disaster Is Worse Than You Think

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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.)