APPLE IN CHINA: HISTORY, PRODUCTS AND KOWTOWING TO BEIJING

APPLE IN CHINA

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Apple’s products — particularly iPhones — have proved to be as desirable for Chinese consumers as for their international peers, and Apple is arguably the only international technology company to really make it in China. But official channels for the sale of Apple products has been limited. The company has only a handful of flagship stores and authorized resellers in the country’s largest cities in the early 2010s.

The first Apple store in China mainland opened in July 2008 in Sanlitun, Beijing. As of 2022, there were 43 Apple stores in mainland China, second most on the world. Only the U.S. has more.. In January 2022, the Apple iPhone 13 had a market share of eight percent in China. It was the most popular smartphone model in the country, followed by the iPhone 13 Pro Max and the iPhone 13 Pro. The market share of the most popular smartphones sold in China in January 2022, by model: 1) Apple iPhone 13 (8 percent); 2) Apple iPhone 13 Pro Max (3 percent); 3) Apple iPhone 13 Pro: 3 percent; 4) OPPO Reno 7 5G: 3 percent; 5) Honor 60: 3 percent [Source: Daniel Slotta, Statista, Apr 13, 2022]

Apple achieved its highest-ever market share in China in the fourth quarter of 2021, when it was the top-selling vendor there for the first time in six years, Counterpoint said. The milestone coincided with the release of the iPhone 13, and amid otherwise stagnant demand for handsets as chief rival Huawei market share declined. Apple's smartphone market share reached 23 percent, a record for the brand. Its unit sales volume grew 32 percent year-on-year in the quarter, while total smartphone sales in China fell 9 percent, according to Counterpoint. Apple last ranked as China's top-selling smartphone brand in late 2015, just after the company launched its iPhone 6, which attracted Chinese consumers with their large screens. Year on year, Apple's unit sales rose 47 percent while Huawei's tumbled 68 percent. Overall smartphone sales in China fell 2 percent, according to Counterpoint. [Source: Reuters, January 27, 2022]

According to the New York Times: In the early 2000s, Apple’s operations chief, Tim Cook spearheaded the company’s entrance into China, a move that helped make Apple the most valuable company in the world and made him the heir apparent to Steve Jobs. Apple now assembles nearly all of its products and earns a fifth of its revenue in the China region. But just as Mr. Cook figured out how to make China work for Apple, China is making Apple work for the Chinese government. [Source: Jack Nicas, Raymond Zhong and Daisuke Wakabayash, New York Times, May 17, 2021]

History of the Apple Products in China

Apple was slow to establish its brand in mainland China, but it products sold well even before they were sold in China. According to the New York Times: “When Apple first moved into China, the country was largely a low-cost production site. It quickly evolved into one of the world’s biggest consumer markets, with more than a billion potential customers. But Apple initially had to take the “Hong Kong U-turn” to get its products into the hands of Chinese consumers. In 2005, Apple’s best-selling portable music device, the iPod, was manufactured in southern China. To comply with the country’s stringent rules, iPods were loaded onto a cargo ship and sent to Hong Kong. Often, when the ship arrived, it was simply turned around and sent back to China." [Source: David Barboza, New York Times, December 29, 2016]

Apple began marketing the iPhone in China in late 2009. As of 2011, it had six retail outlets in Beijing, Shanghai and Hong Kong. Apple products sell well in China (as do fake Apple products). Some people have waited in line for days to be the first to get their hands on iPads. Others thought nothing of plucking down $900 for a two-year contract for 32-gigabyte iPhone 4.

Barbara Demick wrote in the Los Angeles Times, “Apple's first store in Beijing, a big glass cube in a modernist shopping mall, is believed to be the highest-grossing Apple store in the world. Security guards with earpieces now patrol the front door after a stampede ensued in May as people tried to get their hands on the iPad 2, which had just gone on sale. Demand for the iPhone 4 was so keen that Apple stores required would-be buyers to show identification cards to prevent scalpers from buying up the phones and selling them at a premium. A new Apple store that opened in Shanghai in September drew 100,000 visitors the first weekend, some waiting in line for days to get in. The [sales] numbers reflect the Apple fever that you see on the ground in China. If you're at a coffee shop or the airport lounge everybody is using their iPad or iPhone," said Josh Ong, China correspondent for AppleInsider. [Source: Barbara Demick, Los Angeles Times, October 20, 2011]

In the early 2010s Apple was in fierce competition with Samsung in China’s Smartphone market. In 2012, Samsung’s market share in the Chinese market was three times larger than Apple’s and growing. At the time BGR reported: “Apple’s smartphone market share in the country currently sits at 7.5 percent compared to Samsung’s commanding 24.3 percent. The 16.8 point gap between the two companies has nearly doubled since the third quarter,.China is a huge market though with smartphone shipments in the country expected to jump 52 percent to 137 million units in China, overtaking the U.S. for the first time ever as the world’s largest market. Unlike Apple, Samsung offers its mobile devices on all three major carriers, including the world’s largest carrier, China Mobile. “Having access to more subscribers gives vendors like Samsung an advantage,” said Teck Zhung Wong, a Beijing-based analyst with IDC China. “If Apple is going to continue to grow in the Chinese market, it has to consider very seriously a handset with China Mobile.” Despite not selling the device, or even supporting 3G speeds with it, China Mobile currently has more than 15 million iPhone users, all of whom purchased the device unlocked. [Source: Dan Graziano, BGR, March 13, 2012]

Since then Samsung share of the Chinese market has shrunken dramatically as the share of Chinese smartphone makers has risen. The top-selling smartphone brands in Chinese market in 2022 were: 1) Vivo (22 percent); 2) Oppo (including OnePlus, 21 percent); 3) Apple (16 percent); 4) Xiaomi, 5) Honor and Huawei (tied) and 7) Realme. according to market research company Counterpoint Research.

Apple has had its share of problems in China. In April 2013, it came under fire in state media for alleged "arrogance" and double standards, eliciting an apology from chief executive Tim Cook. After it was reported that Chinese consumers had to pay about $80 for new back covers for their devices, even though they were free in other markets, the People's Daily, a state-run newspaper, slammed the firm for five days in a row, urging consumers to "strike away Apple's unparalleled arrogance".“In a Chinese-language letter, Cook said "we sincerely apologize for any concerns or misunderstanding" and Apple had "many things we have to learn" about operating in the country. [Source: Associated Press, July 15, 2013]

Apple has also had its share of conflicts with the Chinese government. In the late 2010s, the company removed thousands of apps from the App Store in China and took out more than 50 VPN apps, which can be used to get around China’s internet censorship system, after they were declared illegal in China. In the spring of 2015, regulators shut down Apple’s iTunes Movies and iBooks Store just six months after the services were introduced in China. Chinese authorities have fined Apple for failure to fully pay its taxes. Apple endured a national security review in China for the iPhone 6 that delayed its release in the country. [Sources: David Barboza, New York Times, December 29, 2016; Jon Russell, TechCrunch, August 21, 2018]

Popularity of Apple in China

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Reporting from Beijing, Barbara Demick wrote in the Los Angeles Times, “If you are a young man in Beijing and you can't afford a car or an apartment, the next best thing is an iPhone, or better yet an iPad. The cult of Apple reigns supreme in China, to the extent that people like Alex Xing, who works in his family's medical supply business, call it "the era of Apple." "Only the old guys, like 20 years older than me, still use Nokias," said Xing, a 26-year-old hipster who wears self-consciously nerdy black eyeglasses, jeans and sneakers. He cradled his own prized telephone close to his heart as he spoke. "Even the girls I meet in the nightclubs have iPhones.''[Source: Barbara Demick, Los Angeles Times, October 20, 2011]

The extremes to which people will go to get their hands on the Apple brand are legendary. A 17-year-old high school student from rural China made headlines in June when he reportedly sold a kidney to buy an iPad 2. State news media reported in September that a 16-year-old girl in the southern city of Guangzhou was killed in a fight with her mother over whether she could get money for an Apple computer. "I've never seen a country with as many people rising into the middle class that aspire to buy products that Apple makes," Chief Executive Tim Cook said Tuesday in a conference call with analysts. "China — the sky's the limit there."

The death of Apple co-founder Steve Jobs in October 2011 elicited a rare outpouring of grief among Chinese fans. An online tribute page on China's equivalent of Twitter had 93 million postings as of Wednesday — the most on any one subject since the Sina Weibo service started two years ago. "How come China can produce a Mao Tse-tung but not a Steve Jobs?" grumbled one fan on the Sina tribute board. "When God wanted to listen to music, he took away Michael Jackson; when God wanted to use iPhone 5, he took away Steve Jobs," wrote another.

In January 2012, shoppers in Beijing threw eggs at the Apple store and fought with police when they were told the iPhone 4S would not be on sale as scheduled. In Hong Kong, Apple resorted to an online lottery reservation system for the 4S model after crowd control issues disrupted initial sales. China Daily reported: “The imminent launch of Apple's upgraded iPhone 4 lured thousands of buyers to its two outlets in Beijing on the cold winter night of Jan 12. But the size of the crowds brought an abrupt suspension of sales of the iPhone 4s on the morning of Jan 13 and one store in Beijing didn't open at all, because the swelling crowd of eager Apple devotees created safety concerns.This is not the first time Apple's marketing strategy has caused such turmoil among the buying public. Similar headlines occurred in January last year when the first incarnation of the iPhone 4 was launched and in May when the second version of the iPad was launched. [Source: China Daily, January 16, 2012]

Apple's clever marketing has made the company's products must-have lifestyle accessories for many, and the company has now replaced Lenovo as the most profitable IT company in China. But as helpful as it is to its bottom line, Apple's strategy for product launches inevitably results in mass hysteria and disturbances and if it continues with this marketing strategy it is only a matter of time before one of its product launches ends in tragedy.

Fake Apple Products and Stores in China

Barbara Demick wrote in the Los Angeles Times, “If imitation is the sincerest form of flattery, Apple has it in droves. The relatively slow pace of opening stores — only four so far in China — has led to knockoff Apple outlets, complete with stark white walls and the logo of an apple with a bite out of it. In the southwestern city of Kunming, Chinese authorities found and closed 22 such stores. [Source: Barbara Demick, Los Angeles Times, October 20, 2011]

Although the stores were fake, most of the products were real, sold through unauthorized dealers or brought in illegally through the United States. A scarcity of supply in China and steep taxes on electronics make prices here higher than elsewhere. New products also arrive later in China. For example, the iPhone 4S was released Oct. 14 in the U.S. but is not expected officially for months in China. It was selling last weekend at a Beijing electronics market for as much as $2,000.

A blogger has discovered a fake Apple store operating in Kunming city, China. Pictures posted on the BirdAbroad blog show a sleek Apple store. Sales assistants in blue T-shirts with the company's logo chat to customers. Signs advertising the iPad 2 hang from the white walls. Outside, the famous logo sits next to the words "Apple Store". And that is the clue it is fake. Those words never appear on real ones, which just make do with the iconic symbol. [Source: Reuters. July 2011]

The store looks every bit like Apple Stores found all over the world. But Apple has no stores in Kunming and only 13 authorised resellers in the city, who are not allowed to call themselves Apple Stores or claim to work for Apple. "This was a total Apple store rip-off. A beautiful rip-off - a brilliant one - the best rip-off store we had ever seen," the anonymous blogger posted on Wednesday.

The manager of an authorised reseller in Kunming, who gave only his surname, Zhang, said most customers have no idea the stores are fake. "There are more and more of these fake stores in Kunming. Although they may sell real Apple products, some of those products were not imported through legal means. And they cost more.'' It was unclear whether the store was selling fake or genuine Apple products. Countless unauthorised resellers of Apple and other brands' electronic products throughout China sell the real thing but buy their goods overseas and smuggle them into the country to skip taxes.

In August 2011, Reuters reported that authorities in Kunming had identified another 22 unauthorized Apple retailers. China’s Administration for Industry and Commerce in the Yunnan provincial capital said the stores have been ordered to stop using Apple’s logo after Apple China accused them of unfair competition and violating its registered trademark, state media said. [Source: Reuters, August 11, 2011]

By early 2012, when i-Phones became more widely available in China through normal channels, smugglers and unofficial resellers of iPhones suffered. Reporting from Beijing, David Pierson wrote in the Los Angeles Times: Brusque with a 2-day-old stubble and a cigarette dangling from his lip, Zhao Xin is the last guy you'd want waiting on you at the Apple store Genius Bar. But if you need to get your hands on a genuine iPhone immediately, Zhao is your man. Skimpy supplies of the Apple Inc. smartphone gave rise to scalpers like Zhao who prowl the perimeter of the company's flagship store here touting their wares to anyone within earshot. By hoarding and smuggling in the devices, they satisfied an unmet demand and charged a premium. In November 2011, an iPhone 4S from Hong Kong could have fetched $2,000...No more....With Apple boosting iPhone stock online and partnering with more local mobile carriers and retailers, Zhao and his cohorts are now in liquidation mode. Customers leaving the Apple store are stopped and offered the phone at face value. Zhao will now even sweeten the deal by throwing in a screen guard for free. “"I'd like to charge more, but no one wants to buy them," he said. "I can't make a profit." [Source: David Pierson, Los Angeles Times, March 14, 2012]

Introduction of iPhones in China

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Apple began marketing the iPhone in China in late 2009 through the service provider Unicom, which had 2,000 stores in China at that tome. The Chinese model was more expensive than black market models available and lacked WiFi, which allowed wireless Internet use, one of its key features. Some of the stiffest competition came from unlocked iPhones brought in from overseas that had WiFi. [Source: AP]

The iPhone was initially only legally available only via China Unicom, the country’s second-largest mobile operator. Sales were sluggish at first, partly because the price tag for the phone was much higher than for iPhones sold through unauthorized channels. As of late 2009, 1.5 million to 2 million such phones were already in China. Unicom iPhones without WiFi started at $730, 20 percent more than black market models with WiFi. The WiFi was not available because was is banned by the government, which was trying to promote a rival Chinese system. China Mobile released several smartphone models to compete with the iPhone.

Even though much of the iPhone is manufactured in China the device was not sold there until 2009 because of problems with “regulatory bodies” over the wireless Internet function and the 3-G network its used and delays caused by Apple’s inability to strike a deal with China Mobile, China’s largest cell phone operator. In the meantime sales of smuggled, “unlocked” and counterfeited iPhones and iPhone look-likes like the M8 MiniOne were brisk. Chinese who traveled abroad have been asked by friends and relatives to bring back iPhones for them. A three-step tutorial available on the Internet shows people how it “unlock” their phones so they can be used in China.

Apple recorded record sales when it launched the iPhone 5 in December 2012. Bloomberg reported: “Apple sold more than 2 million of its latest handsets in the three days. Apple sales took off when the company finally made a deal with China Mobile, China’s largest mobile phone provider, in December 2013, with a launch in early 2014. .

Catherine Shu wrote in Techcrunch.com: The iPhone is finally available for sale in China Mobile stores after Apple spent years negotiating for a deal with the carrier, the world’s largest by subscriber number. In a sign of how important the partnership is to Apple, CEO Tim Cook showed up at the China Mobile launch today to meet customers, pose for pictures, and autograph iPhones. China Mobile has 740 million subscribers, but competing carriers China Unicom and China Telecom have already carried the iPhone 5s and 5c since September. As The Next Web points out, China Mobile subsidies are also pricier. For example, China Mobile users can get a 16GB iPhone 5s for free if they commit to a 24-month plan for about $97 per month, or they can pay about $625 for the same phone if they get a 24-month contract for $31 per month. But China Unicom subscribers get an iPhone 5s for free when they commit to a 30-month contract for $63 per month. China Telecom users also get a free iPhone 5s by signing up for a 24-month contract at $64 per month. China Mobile’s contracts are less attractive than its two competitors, but it can afford to charge a premium partly because it uses a TD-LTE standard for its 4G networks, making its network speedier than its two competitors. [Source: Catherine Shu, techcrunch.com. Jan 16, 2014]

Chinese Teenager Sells Kidney to Buy iPhone

A 17-year-old Chinese boy one of China's poorest provinces sold a kidney to buy iPhone and five people were arrested in connection with the scheme. According to the state-run Xinhua news agency, the five included a surgeon who removed a kidney from the boy in April 2011. The boy now suffers from renal deficiency, Xinhua quoted prosecutors in Chenzhou city, Hunan province, as saying. [Source: Reuters, The Guardian, April 6, 2012]

“According to Xinhua, one of the defendants received the equivalent of about US$30,000 to arrange the transplant and paid the teenager $3,000 and split the rest with the surgeon, the three other defendants and other medical staff. The report did not say who received and paid for the kidney. According to Reuters: “The teenager was from Anhui, one of China's poorest provinces, where locals frequently migrate to find work and a better life elsewhere. He bought an iPhone and iPad, and when asked by his mother where he got the money, admitted selling a kidney. “

Chinese Woman Electrocuted By iPhone 5

In 2013, a woman was killed when she was electrocuted when answering he iPhone while the device was charging. Associated Press reported: “The claim quickly drew attention after a woman in the western region of Xinjiang wrote about the death of her 23-year-old sister Ma Ailun on China's popular microblog service Sina Weibo. "We will fully investigate and cooperate with authorities in this matter," said Apple's Beijing-based spokeswoman Carolyn Wu, offering condolences to the family. [Source: Associated Press, July 15, 2013]

“The state news agency Xinhua said that local police had confirmed Ma died of electrocution but "have yet to verify if her phone was involved". Ma's sister warned others not to use their phones while they were charging and asked Apple to provide an explanation, saying on Weibo on: "What a shame, to pass away like this." Weibo users responded with concern about the potential danger but also questioned if the claim was real. "If the accidents are real, let's be more careful when using our mobiles," one person said, but added: "Is someone trying to smear Apple?"

Pressure on Apple by the Chinese Government

David Barboza wrote in the New York Times: “The Chinese government pressed Apple to hand over its source code. Apple said it refused. But “Apple has agreed to the government’s request to store more of its local data on Chinese servers. It must also undergo “security audits” on new models of the iPhone before gaining approval to sell the product. [Source: David Barboza, New York Times, December 29, 2016]

According to the New York Times: In the mid 2010s "the Chinese government was starting to pass laws that gave the country greater leverage over Apple, and Mr. Guthrie said he believed Mr. Xi would soon start seeking concessions. Apple, he realized, had no Plan B. “For Chinese authorities, this is no longer about, ‘How much money are you pouring into China?’ This is about, ‘What are you giving back?’” Mr. Guthrie said. Mr. Guthrie delivered his warning to Mr. Cook’s top deputies and Jeff Williams, its operations chief, who is widely viewed as Mr. Cook’s right-hand man. [Source: Jack Nicas, Raymond Zhong and Daisuke Wakabayash, New York Times, May 17, 2021]

Much attention was focused on Apple’s iCloud service, which “allows customers to store some of their most sensitive data — things like personal contacts, photos and emails — in the company’s data centers. The service can back up everything stored on an iPhone or Mac computer, and can reveal the current location of a user’s Apple devices. Most of that data for Chinese customers was stored on servers outside China. Apple’s China team warned Mr. Cook that China could shut down iCloud in the country if it did not comply with the new cybersecurity law. So Mr. Cook agreed to move the personal data of his Chinese customers to the servers of a Chinese state-owned company. That led to a project known inside Apple as “Golden Gate.”

“In China, Apple has ceded legal ownership of its customers’ data to Guizhou-Cloud Big Data, or GCBD, a company owned by the government of Guizhou Province, whose capital is Guiyang. Apple recently required its Chinese customers to accept new iCloud terms and conditions that list GCBD as the service provider and Apple as “an additional party.” Apple told customers the change was to “improve iCloud services in China mainland and comply with Chinese regulations.” The terms and conditions included a new provision that does not appear in other countries: “Apple and GCBD will have access to all data that you store on this service” and can share that data “between each other under applicable law.” Under the new setup, Chinese authorities ask GCBD — not Apple — for Apple customers’ data, Apple said. Apple believes that gives it a legal shield from American law, according to a person who helped create the arrangement. GCBD declined to answer questions about its Apple partnership.

In 2012, Apple paid $60 million to Proview Technology (Shenzhen) to end a protracted legal dispute over the iPad trademark in China. Reuters reported: “The company and Proview, a unit of Hong Kong-listed Proview International Holdings negotiating to reach a settlement since the court conducted an initial hearing in February 2012, after Apple appealed a lower court ruling against it. Apple had said it bought ownership of the iPad trademark in various countries from Proview, once a global monitor maker. But the Chinese company said Apple dealt with only one unit of Proview. A Chinese court ruled that Proview Technology (Shenzhen) owned the name in China. Proview, which registered the iPad trademark in China in 2001, tried in May to sue Apple in the United States, but that case was thrown out. [Source: Melanie Lee and Samuel Shen, Reuters, July 2, 2012]

How Apple Kowtows to the Chinese Government

David Barboza wrote in the New York Times: “Beijing expects American companies to help develop China’s own capabilities. Apple is teaming up with UnionPay, a state-backed financial services company. It has invested $1 billion in the Chinese ride-hailing service Didi Chuxing, which has significant backing from state companies. Tim Cook, Apple’s chief executive, has also carefully cultivated Apple’s image as a big employer, a good corporate citizen and a major economic contributor. He comes to China regularly. He has donned factory uniforms and walked the assembly line in Zhengzhou. He has courted regulators, the heads of state telecom giants and the country’s top leaders, including Mr. Xi. [Source: David Barboza, New York Times, December 29, 2016]

“In an interview with Chinese state television last year, Mr. Cook explained how Apple was planting trees in the country, calling the effort a “pillar of its environmental strategy.” He detailed plans to build a massive solar project to power Apple’s stores, headquarters and offices throughout the country. He also boasted about creating over three million jobs in China, half of them in manufacturing. At the Hall of Purple Light in the government’s walled leadership compound in Beijing, Mr. Cook promised in August to build the company’s first research and development center in the country and to support the government’s big focus on high-end manufacturing. Opposite him sat the vice premier, Zhang Gaoli. Beside him sat his partner. There was the chairman of Foxconn, Mr. Gou. Also present was the party leader of the province where Zhengzhou is located, Xie Fuzhan.

Reporting from Guiyang, Jack Nicas, Raymond Zhong and Daisuke Wakabayash wrote in in the New York Times: On the outskirts of this city in a poor, mountainous province in southwestern China, men in hard hats recently put the finishing touches on a white building a quarter-mile long with few windows and a tall surrounding wall. There was little sign of its purpose, apart from the flags of Apple and China flying out front, side by side. Inside, Apple was preparing to store the personal data of its Chinese customers on computer servers run by a state-owned Chinese firm. Chinese state employees physically manage the computers. Apple abandoned the encryption technology it used elsewhere after China would not allow it. And the digital keys that unlock information on those computers are stored in the data centers they’re meant to secure. [Source: Jack Nicas, Raymond Zhong and Daisuke Wakabayash, New York Times, May 17, 2021]

“Behind the scenes, Apple has constructed a bureaucracy that has become a powerful tool in China’s vast censorship operation. It proactively censors its Chinese App Store, relying on software and employees to flag and block apps that Apple managers worry could run afoul of Chinese officials, according to interviews and court documents. A Times analysis found that tens of thousands of apps have disappeared from Apple’s Chinese App Store over the past several years, more than previously known, including foreign news outlets, gay dating services and encrypted messaging apps. It also blocked tools for organizing pro-democracy protests and skirting internet restrictions, as well as apps about the Dalai Lama.

Image Sources: Wiki Commons

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, The Guardian, National Geographic, The New Yorker, Time, Reuters, AP, AFP and various books and other publications.

Last updated May 2022


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