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Apple in China: WTF?

A ChinaFile Conversation

In November, the non-profit watchdog Freedom House called China “the worst abuser of Internet freedom” of the 65 countries it surveyed. And yet, on December 3, Apple CEO Tim Cook keynoted China’s annual World Internet Conference. “The theme of this conference—developing a digital economy for openness and shared benefits—is a vision we at Apple share,” Cook said—this not long after the California company, under pressure from Beijing, removed from their app store in China all Virtual Private Network, or VPN, products that allow iPhone users inside the country to leap the Great Firewall in an end-run around Internet censorship. Why do CEOs such as Cook, and Google’s Sundar Pichai, attend these types of events? What is the impact of their participation in and statements at these events likely to be? How much influence do these large companies have over China’s Internet regulation and what do they stand to gain or lose by publicly supporting Internet freedom? —The Editors

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In July, following news that Apple had complied with Chinese demands to remove dozens of VPN apps from its local App Store, I argued that the company had little choice. Aside from holding the keys to market access, Chinese authorities have a potential chokehold on almost the company’s entire supply chain, granting them an extremely high degree of leverage. Unconstrained by any legal recourse, Beijing could wreak as much overt or covert havoc on Apple’s global operations as it wished. This is a situation of Apple’s and especially Cook’s own making, but the choices that led it there are perhaps understandable, taken years before the company became a major content gatekeeper, amid a pervasive belief that China was bound to liberalize. Apple might now carve out some more room to maneuver by diversifying its supply chain, but for now, it has little. Even if it did have a choice, this seems like a particularly bad point in history to encourage tech companies to hold themselves above national laws, however much we dislike them.

These arguments might acquit Apple in the case of legally mandated complicity in China’s censorship regime. But by dancing onstage at the World Internet Conference, furnishing his hosts with golden soundbites about shared visions and common futures, and by endorsing hollow official rhetoric about “openness,” Cook has crossed a line. His appearance legitimizes the system of censorship and control in which he’s previously claimed to be an unwilling conscript—the same one that ordered the deletion of content describing the conference as a sham and Cook and other visitors as “beggars.” Gentle qualifications about technology “infused with humanity” don’t soften his misstep. Neither does the fact that Cook’s peer Mark Zuckerberg and his president Donald Trump have crossed the line ahead of him.

China employs the power of its wallet—both the State’s and the consumer’s wallet combined together—to reward brands that heed the wants of China politically, while using this same power to punish countries and, increasingly, companies that go against China’s wants politically. South Korea and the conglomerate Lotte are a prime example that felt China’s wrath after the deployment of the U.S.-supplied THAAD missile defense system. China blocked tour groups from visiting South Korea. The total number of Chinese tourists to South Korea dropped 40 percent in April 2017 year-on-year. But China went farther and punished Lotte, the Korean conglomerate that ceded the land for the THAAD deployment. Lotte had dozens of its retail outlets shuttered in China by authorities, ostensibly for violation of the tax code and numerous other minor violations. Chinese consumers protested against Lotte. Beijing shut a Lotte joint venture with the American candy-maker Hershey, and local governments stalled plans for opening up Lotte theme parks in China.

Seeing China’s economic hammer come down on Lotte and previously on Google, Apple CEO Tim Cook and other Western Internet executives make their way to the World Internet Conference in the city of Wuzhen essentially to pay homage to China’s political system and to show they are willing to do whatever it takes to gain access to the lucrative Chinese market, even if it means taking away VPNs for download in their app store, as Apple has done, or locating their servers inside China’s borders, and thus subject to Chinese law, as LinkedIn has done. Some executives were even seen bowing to President Xi Jinping as if he were an emperor.

The rewards China bestows on the these foreign Internet companies can be huge—China is Apple’s largest market outside of the United States. It generated 18 percent of Apple’s global revenue in the third quarter of 2017. Most of its products are assembled in China. Executives salivate at the size of the Chinese consumer market. It has become the largest market outside of the U.S. for companies ranging from Starbucks to Nike.

China has a long memory, too. While Tim Cook spoke to a packed auditorium in Wuzhen, his counterpart at Google, Sundar Pichai, spoke to an empty room. Reports were that authorities never made it clear what time Pichai’s speech was set, so no one knew when to attend. But Cook’s words in support of China’s Internet policies will be used in propaganda by the government to show how open they are to foreign players. And Cook will be rewarded with continued access to the lucrative Chinese wallet.

China has smartly used it wallet to get what it wants politically beyond its own borders. See how publisher Springer censored its own book catalog. China’s wallet is a power so large and lucrative that no single Internet company can withstand it. Going forward, it is only at the government-to-government level that these issues can be worked out. It is surprising that neither the Obama nor Trump administrations made a bigger push for greater access for Western technology firms in China—such a push should be couched not as a human rights issue but one based on money. America’s Internet companies are losing out on billions of dollars of profit under the current policies.

At the 4th World Internet Conference, Apple CEO Tim Cook defended Apple’s removal of VPN apps from the app store in China, saying that China should not be criticized. He said it is important for Apple to follow Chinese law and participate in China’s market rather than criticize China.

Chinese long have known that Apple products sold inside China are not the company’s authentic advanced technology. Apple products sold in China are modified to suit the Chinese government rather than Chinese consumers. That is part of the reason that so many Chinese prefer to ask friends to buy Apple products for them overseas and get everything they need installed before coming back behind China’s Great Firewall. Chinese consumers should protest Apple for their bias against consumers.

It is important for companies to do their business for profit while not violating public interests, locally and globally. Cook’s claim that Apple shares China’s vision for an “open” Internet is an endorsement of Chinese censorship and a stark example of a transnational company’s failed corporate social responsibility (CSR). Cook’s statement signals a downward trend in CSR around the world and raises questions about the rhetoric of participation. Cook’s definition of participation in the Chinese market is a participation of collusion with oppressive forces that discourage the very values and ideas being promoted by Apple as a company. This kind of participation pushes against progress in the arena of civil society.

Cook’s decision is an extreme example among transnationals doing business in China. It is a consequence of his misinterpreting Chinese diplomacy and of a lack of support for Apple from the U.S. government. If, in future, a transnational company’s native country government protects its overseas interests and integrity—stepping up for and speaking on behalf of the company when it faces political pressure from Beijing—then companies such as Google might not be forced to take an extreme stand and leave the Chinese market on principal.

I understand Internet companies are transforming themselves into nationless global companies. This trend will require more cooperation between countries and their governments. Individual companies are not able to confront overseas governments effectively. Governments, however, can agree to speak with other governments to define and defend basic principals and public interests. The Chinese government has become much more confident in recent years and now imagines itself at the center of the world. Understanding China’s complexity and vulnerability and the nature of Chinese propaganda in communicating with both outsiders and insiders, is more important than ever. Western countries should not encourage the Chinese government’s over-stated ego, nor give it recognition as the leader of a strong and civilized country, especially considering that human dignity and the public interest are not priorities among Beijing policymakers.

This is not a new debate at all. In 2010, I argued why it was wrong for Google to exit China due to Internet censorship.

I guess I was right because Google has expressed its intention to return to China. The argument I would make for Apple is pretty similar. The difference is that Tim Cook made the right decision to stay.

The vast and fast-growing China market has been a magnet for multinational companies in all industries.

If we recall the early 1980s, there were many more challenges and frustrations with doing business in China then than today, from government red tape, to a lack of skilled workers, to poor infrastructure, and even power outages. There weren't many restaurants and bars to hang out in.

However, most of the early multinational corporations—from 3M and CocaCola to General Electric and General Motors—did not give up. In the past decades, they have not only survived but thrived in China.

If they wanted to exit China simply due to some of the frustration of operating there, I think a lot of these companies would have left long time ago.

If Google had chosen to stay in 2010, it would have had to operate according to Chinese law. Still it would be able to provide many valuable services to Chinese users despite some restrictions. By leaving the Chinese market, the result was been a double loss for both Chinese Internet users and for Google itself.

It is true that we would all like to work and operate in an ideal setting, yet the reality is often less perfect. China, as a country in transition, is still evolving.

I want to repeat my argument in the Google case in 2010: if you want to help change China for the better, you should involve China in your work and be there on the ground. Otherwise you won't have an impact on the country simply by claiming a high moral ground and distancing yourself from the place. Leaving China is an easy decision for Google to make. Staying on is a much tougher one.

There is no doubt that Apple made a better decision than Google in 2010.

You don’t have to be a cynic to sense a dystopian absurdity in China’s annual “World Internet Conference.” In such a war-is-peace spectacle, Apple CEO Tim Cook was woefully ignorant about the true meanings of “openness” and “shared benefits.”

But if you looked around, there was not a single loser at the conference. No, it obviously was not a struggle session in which Apple and Google must confess their devious feeling-hurting schemes against China. The beauty of this spectacle is that as long as the tributaries declare the emperor has clothes, everyone is a winner.

It is not surprising that global tech giants are lending legitimacy to China’s ideology in exchange for its chunky market. After all, the premise of China’s “open Internet” ideology is that ever-increasing censorship is and will be a constant. China’s uncompromising attitude has created what many people call a “dilemma” for foreign companies, which is basically a choice between moral high ground and profit. Neither is a bad option.

The only problem with this whole spectacle is that censorship perhaps isn’t the best way to go about things, and this tiny little objection isn’t out of personal grievance. Without a doubt, censorship is a nuisance for the Chinese middle class: simple day-to-day needs such as accessing scholarly literature, staying in touch with foreign friends and watching Korean drama and American TV shows become “guilty” pleasures. However, as someone who was just old enough to experience the good old days when the likes of Facebook, Twitter, YouTube, and the websites of most Western media outlets were all accessible inside the Great Firewall back in the Stone Age (circa 2007, when I first became aware of China’s open Internet as a preteen), I don’t think jaded netizens trolling “World 404 Conference” for the past week (and getting their comments harmonized, of course) have the most to complain about censorship.

Too often our critique of censorship stops short right at the inconveniences of blocked websites, but these inconveniences pale in comparison to the way censorship is eroding the fabric of Chinese society. As the tide of censorship flows, people are disconnected with and distrustful of one another, public discussion is stunted, grievances are suppressed, and wrongdoers are not held accountable. China’s social problems are not unique, but this unparalleled degree of censorship and cover-up is providing little more than a façade of stability without tackling the core challenges or improving governance.

Yet maybe the fundamental peril of censorship is now too commonsensical to matter to any delegate at the “World Internet Conference.” And that’s probably why we heard CEOs from world-renowned tech companies echoing the anthem of China’s censorship regime. Compared to putting on a show, however, humming along with seatbelt fastened is likely a wiser choice for next year, as there will always be a next year.