Apple's business in mainland China sets it apart from Silicon Valley peers that don't operate there.
Apple has not taken a firm stand against Beijing’s new national security law in Hong Kong like other U.S. tech firms. The company has not elaborated on its decision, but there’s no doubt the iPhone maker has more to lose than its peers in taking on Beijing.
On Tuesday, Facebook, Google, Twitter, Microsoft, Zoom, and Telegram, announced they will temporarily halt sharing data with the Hong Kong government a week after its national security law took effect. The decision puts the firms at odds with China’s central government, which foisted the law on the special administrative region in what critics see as an attempt to quell pro-democracy protests. Apple’s response, meanwhile, was less explicit; it told Bloomberg that it is still “assessing” the implications of the law. Apple did not respond to Fortune’s request for further clarification on its comments.
Subscribe to Eastworld for weekly insight on what’s dominating business in Asia, delivered free to your inbox.Unlike Google, Facebook, and Twitter, whose flagship websites are banned on the mainland’s censored Internet, the mainland remains core to Apple’s business interests. Apple relies on the mainland to manufacture an overwhelming majority of its iPhones, computers, and other products, and some 75% of its suppliers have at least one production site in China. In February, Apple CEO Tim Cook was asked on Fox Business if Apple’s supply chain is too reliant on China given the pandemic’s early disruption there. “My perspective sitting here today is that if there are changes, you’re talking about adjusting some knobs, not some sort of wholesale fundamental change,” Cook said.
Apple’s sales in the Greater China region—encompassing the mainland, Hong Kong, Taiwan, and Macau—represent 14.8% of Apple’s overall revenue. In 2019, the Chinese market also made up 17% of the company’s profits, according to Apple’s financial statements. While the iPhone’s popularity in China has dimmed in recent years amid the rise of domestic competitors like Huawei and Xiaomi, the device remains the top-selling foreign smartphone in China and accounted for 8.5% of all smartphone sales in China in the first quarter of 2020, according to tech research firm Canalys.
“Whereas Facebook, Google, and Twitter are already banned, Apple heavily relies on China for both revenue streams and supply chains,” said Brock Silvers, chief investment officer of Adamas Asset Management in Hong Kong. “Apple has a great deal of risk in China… [and] is understandably lagging its tech peers in suspending data sharing arrangements with the Hong Kong government.”
Indeed, Apple has been a rare foreign tech firm to find success behind China’s Great Firewall. But that record now appears to be setting it apart from tech companies willing to stand up to Beijing when it comes to Hong Kong.
The tech companies that immediately suspended data sharing with the Hong Kong government saw the provisions as a potential violation of privacy and human rights.
“We believe freedom of expression is a fundamental human right and support the right of people to express themselves without fear for their safety or other repercussions,” a Facebook spokesperson said in a statement on its pause on reviewing Hong Kong government requests for user data.
The tech firms’ decisions came after Hong Kong’s government announced rules for how it intends to carry out Beijing’s new national security law, which went into effect on June 30 and aims to target the four crimes of subversion, secession, terrorism, and collusion with foreign actors. The new provisions provide broad powers for Beijing authorities to seize user data from Internet publishers and service providers and use it to prosecute those found in violation of the new law.
The wariness that tech firms harbor over the Hong Kong’s new law aligns with criticism of the law by U.S. and European governments.
In a tweet on Monday, U.S. Secretary of State Mike Pompeo called the law “draconian” and said the U.S. condemns the “Orwellian assaults on the rights and freedoms of the Hong Kong people.”
For major tech firms that don’t operate in mainland China, the move ultimately may risk their business in Hong Kong. But Hong Kong’s 7.5 million residents represent a relatively small market for global companies, and tech firms likely would rather sacrifice business opportunities in the city than be seen by Western powers as subservient to Beijing.
“Facebook, Google and Twitter really don’t have much to lose” by taking a stand in Hong Kong, said Jeffrey Towson, a private equity investor in China and investment professor at Peking University in Beijing. “User data and privacy were already hot-button issues in U.S. politics relative to China… so it wasn’t surprising that these U.S. tech firms looked at user data and privacy first.”
In regards to sharing data, the new Hong Kong law is the first time Beijing authorities may be able to access user data from tech companies like Facebook and Twitter.
Facebook, for instance, has never received a request for data from China’s government because the mainland’s Internet blocks its 1.4 billion residents from accessing Facebook’s platform.
Meanwhile, Apple’s established mainland business means it already has mechanisms in place for processing user data requests from Beijing as well as from Hong Kong officials. From January through June of 2019, Apple approved 96% of 906 user data requests from the Chinese government and 91% of 358 requests from Hong Kong.
Apple’s reticence to pause data sharing with Hong Kong is not the first time Apple has appeared to side with Beijing when it comes to the city.
Amid the protests that engulfed Hong Kong for much of 2019, app developers in Hong Kong created a tool for city residents to track the location of protesters and police via an app called HKmap.live.
The developers submitted the app to Apple in late September. Apple initially rejected the app, claiming that it encouraged illegal behavior. Apple then reversed the decision and released the app on its store on Oct. 4.
In response, the China’s state-run newspaper penned an editorial on Oct. 9 accusing Apple of “helping Hong Kong rioters engage in more violence.” The following day, Apple removed the app from its store and in a statement said that the app had been “used to target and ambush police” and “threaten public safety.” Google, on the other hand, decided to leave the HKmap.live app up on its play store.
Apple’s decision to take down the app drew the ire of U.S. lawmakers who wrote a letter to Apple CEO Tim Cook expressing deep concerns over Apple’s decision.
“Cases like these raise real concern about whether Apple and other large corporate entities will bow to growing Chinese demands rather than lose access to more than a billion Chinese consumers,” said the letter signed by lawmakers like Sen. Marco Rubio (R–Fla.) and Rep. Alexandria Ocasio Cortez (D–N.Y.).
Amid Hong Kong’s new national security law, Apple is still firmly stuck between the demands of Beijing and its home market.
