Apple’s Shanghai Shakedown

Apple announced late last week (in a Chinese-language-only announcement) that it will set up two additional R&D centers in China, in the cities of Shanghai and Suzhou. As a friend of mine put it, “Having any intellectual property development in a country that has zero respect for intellectual property rights seems a strange thing to do. Unless it’s a camouflaged bribe in order to be permitted to sell iPhones in China.”

Dow-Jones News Service reports:

The new centers, to be set up in Shanghai and Suzhou, bring Apple's total commitment to R&D facilities in China to more than 3.5 billion yuan, or about $500 million, Apple said Friday in an announcement it issued only in Chinese. It last year committed to opening a similar center in Shenzhen, and currently operates one in Beijing.

[Apple CEO Tim] Cook is expected to mention those commitments in a speech on innovation and corporate social responsibility at the China Development Forum, an event for discussion between China's senior leadership and global business executives that begins Saturday. Mr. Cook has traveled numerous times to China, but it will be his first time speaking at the forum, which is hosted by an arm of the State Council, China's cabinet, and takes place at the Diaoyutai State Guesthouse in Beijing. The guest list also includes International Business Machine Corp. CEO Ginni Rometty and Johnson & Johnson CEO Alex Gorsky.

Apple is definitely feeling pressure in China:

Apple is grappling with rising pressure from homegrown rivals and a string of other setbacks in China, its most important market outside the U.S. Its sales in Greater China fell 17% in its latest fiscal year to $48.49 billion, as Huawei Technologies Co. and other Chinese companies gained share against its iPhone -- although Apple said sales stabilized in the most recent quarter in mainland China, which excludes Taiwan and Hong Kong.

Apple last year was forced to halt its online music and book services in China because they violated local media rules. The company also faced criticism from local consumer groups last year over complaints that iPhones were spontaneously shutting down even as half the devices' battery life remained. Apple said a limited number of phones were affected and offered free replacement batteries for those devices. (snip)

"Apple is annoying to China because it's selling phones and sending money back to the United States," said Roger Kay, an analyst at Endpoint Technologies Associates Inc. "It's competing with Xiaomi and Huawei, and that's an irritant."

There are, of course, some non-political advantages to putting R&D facilities overseas. China has a lot of talented graduates of universities like Tsinghua, whose skills maybe different from those of graduates elsewhere.

But there can be no underestimating China’s desire to acquire foreign technologies by hook or by crook, to lock out foreign producers.

Apple’s commitment to privacy for its users seems to be stronger in the US than in China:

Under Mr. Cook, Apple has emphasized protection of customer-privacy -- publicly battling a Federal Bureau of Investigation effort to force it to help unlock an iPhone used by San Bernardino terrorists. Mr. Cook also has raised concern about the rise of "fake news," calling last month in an interview with British newspaper the "Independent" for technology companies to "create some tools that help diminish" its rise.

In China, the world's largest smartphone market, Apple has made concessions. It removed the New York Times from its App Store earlier this year. That followed an agreement in 2015 to submit products for Chinese security checks and an earlier decision to move Chinese customers' data from overseas servers onto a domestic system operated by state-run China Telecom.

Apple said it removed the New York Times app because it violated local regulations. It has said that Chinese consumers' data is encrypted.

The sad fact is that major corporations react differently to “strong horse” governments like China’s, and cave in rather than fight a losing battle. In the US, with our due process rights, the government’s voice simply counts for less.

Which leaves members of the American public wondering whose side Apple really will be on when push comes to shove (as it will regarding advanced technology and privacy and many other issues).

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