Apple’s biggest China problem: iPhone’s strong encryption

“It isn’t clear why China suspended iTunes and iBooks, but I’m betting on iPhone encryption as the key issue. Investor Carl Icahn – long an Apple bull – dumped his Apple stock over China market concerns, I see a more direct threat,” Robin Harris writes for ZDNet.

“China’s ruling party is but a (heavily armed) flea on the back of the mass of the Chinese people. With the economy slowing and the nation facing a demographic cliff with a rapidly aging population and a weak social safety net, the Party is tightening its control for fear of social unrest,” Harris writes. “Obviously, unbreakable private communications is a threat to a totalitarian regime. And China has much more leverage over Apple than Uncle Sam.”

“The most important difference between the US and China for Apple is that most all of Apple’s products are manufactured in China,” Harris writes. “The government could shut down Hon Hai – Apple’s main manufacturing vendor – in a heartbeat, crippling Apple in a matter of days.”

Read more in the full article here.

MacDailyNews Take: With fear of social unrest over a slowing economy, how exactly does rapidly and further slowing the economy by laying off over a million of the country’s best-paid factory workers help China’s ruling party mitigate social unrest?

Apple is far from powerless in China.

17 Comments

  1. Apple may be one of the larges manufacturers in China, employing more than any other foreign company, but let us put this in perspective. The entire world manufactures there. Apple’s one million workers represent 0.05% of Chinese population. Even in a democratic society, such small fraction of population would have very little effect to the government’s action. In China, where government doesn’t really care all that much for the sentiments of their people; they are simply irrelevant.

    For Chinese government, it is of significantly greater strategic importance to have complete access to their population’s communications, rather than to preserve the employment of mere 0.05% of the population.

    1. Not true at all. China is currently facing the steel, coal, and cement industries possibly laying off up to 5 million workers in the next 2-3 years. Their biggest threat is a slowing economy and a growth in unemployment. Raising the people’s living standards is the promise that has kept the regime in power for the last 40 years.

  2. Great take MDN.

    Apple has power in China. Lets see when Apple start talking about moving out of the country into Asia… Lets see that lenghty china government reacte…

    Nowaday, it is all about economics. China joined us a couple of decades ago. They will have to work together.

    Kicking Apple out of China is a misunderstanding of our contemporary world

  3. “Obviously, unbreakable private communications is a threat to a totalitarian regime.”

    … and which regime has so far tried the hardest to get a back door inserted into Apple’s strong encryption?

      1. You could say exactly the same thing about whether we would hear about the US government trying to get a back door into IOS. The fact is that Apple not only ton every public, but also made a very clear statement that only the US government has tried to force Apple to create a back door. Apple has no reservations about calling out it’s own government over this, so I don’t think that it’s plausible that they would not only agree to such a demand from China, but also to keep quiet about it.

        I think that it’s highly significant that Apple has gone so public about not allowing a back door into IOS and in return getting hostile press about the FBI not being able to access IOS devices, while at the same time we do not see reports of the FBI having hundreds of Android, Blackberry or Windows phone devices that they are unable to access. It seems to me that there are almost certainly back doors already installed in other platforms, but with the exception of Blackberry, we haven’t heard about them yet.

  4. “If China chooses the ultimate sanction, Apple could be bankrupt in a few months.”

    I doubt it, Apple can adapt, that is one of its greatest strengths. Sure it would hurt, but cripple? There’s a big difference between a broken leg and amputating one.

    1. I would not be surprised if Apple (or it’s manufacturing partners) has a long term plan that includes a contingency for moving manufacturing. From what I’ve read, Hon Hai has already been adding ever more automation to their manufacturing process. The more automated it becomes, the less important the availability of cheap workers is to the choice manufacturing location. If fully automated, they could be built almost anywhere for the same cost.

      1. I would have to question ‘same cost’ since you have to take into account where the parts are being manufactured, logistics cost to move those parts and exchange rates for paying for the movement of those parts.. For example if Apple should completely automate and move everything to Japan where they have few natural resources and have to import all raw materials, I’m sure the cost of production and distribution would be different.

    2. Bankrupt in a few months, ridiculous. Operating expenses for 2015 were just over 30billion. Apple has over 250 billion in cash, most of it handily overseas. Even at current opex levels Apple could survive over 8 years without making a single product. If it was no longer manufacturing that opex could drop by 80% and Apple could last decades, easily long enough to rebuild its entire manufacturing base elsewhere. And as for China they would be cutting hundreds of billions of crucial export dollars out of their economy as well as millions of new unemployed workers. It would be a unmitigated disaster.
      Any member of the Communist Party who was silly enough to propose such a measure would be promptly purged by the Party members who have large stakes in HonHai.

      1. Depending on where they have their money overseas, they may still have the same problem of repatriating that money to the country that they are paying the bills in. It’s not as if other countries don’t also have repatriation taxes.

  5. Thank you:
    Obviously, unbreakable private communications is a threat to a totalitarian regime.

    An again: If any government reverts to totalitarianism, they are a FAILure. No wonder the Chinese communist party is ScAReD. They know damned well ‘communism’ is a fraudulent concept that does not work. Totalitarianism translates into: Desperation.

  6. Guess who’s going to want to own iPhones with impervious end-to-end encryption? That’s right: China’s leaders. These leaders, of course, would not want or allow their common citizens to have the same thing because it would be too threatening to their dubiously held positions.

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