Apple needs to be big in China. And like so many companies desperate for access to one of the world’s largest consumer markets, it’s having to play by some fairly tough rules.
Last week, China temporarily suspended ties with the NBA after Daryl Morey, the general manager of the Houston Rockets, tweeted – and quickly deleted – his support for Hong Kong’s pro-democracy protesters, forcing the NBA to publicly apologise for the move. That same week, Blizzard controversially banned a Hearthstone tournament player after he made a political statement in support of Hong Kong protesters during a post-tournament interview.
But more significant are the actions of Apple. The company has removed two apps from its App Store after receiving widespread criticism from Chinese state media. One of these was the app for news website Quartz, which has extensively covered the Hong Kong protests; the other was the HKmap.live app after authorities claimed that protesters were using the app to target and attack the police.
These moves by Apple are part of a wider pattern of behaviour by the company to appease China, which has become one of its most important markets. And a closer look at the numbers reveals just how important China has become to the Cupertino-based firm – and how far it’s willing to go to keep the world’s most-populous onside.
2 apps banned
Things first got heated when Apple removed HKmap.live from its App Store, something it did twice. HKmap.live, an app which enables people to crowdsource the location of police in Hong Kong, was first removed because the company claimed that it “facilitates, enables or encourages an activity that is not legal’. The developer complained about its removal on Twitter, and Apple reinstated the app a few days later. But after China’s People’s Daily accused the company of protecting rioters, Apple removed it again. This time for good. Defending the company’s actions in an email to all Apple employees, Tim Cook said, “we received credible information from the Hong Kong Cybersecurity Technology Crime Bureau, as well as from users in Hong Kong, that the app was being used maliciously to target individual officers for violence”.
Or should that be 517 apps banned?
But Apple has been listening to China way before the HKmap.live controversy. HKmap.live and the Quartz news app aren’t the only two apps which have been caught in China’s vicious firing line in recent years. According to Apple’s transparency report, the company removed 634 apps from its App Store at the request of governments around the world in the second half of 2018. A massive 517 of these apps were removed at China’s request and it complied with all of its take-down requests, except for one. As Neil Mawston, executive director at Strategy Analytics says: “All smartphone players in China have to be politically aware, not just business-savvy.”
0 Taiwanese flags
As of iOS 13.1.1, the Taiwan flag emoji is missing from the Emoji keyboard for anyone who has their region set to Hong Kong or Macau. As the People’s Republic of China considers Taiwan to be under its control, an emoji of the Taiwan flag would go against its sovereignty. Back in April, the company removed numerous Hong Kong-based artists from the Chinese version of Apple Music. Many of these singers made reference to the 1989 Tiananmen Square protests.
5.7 million iPhones sold
So why is Apple trying desperately to stay away from politically sensitive issues? To put it bluntly, Apple really wants to sell more iPhones in China. According to estimates from Canalys, Apple is selling fewer iPhones every year. In the second quarter of 2019, the company only sold an estimated 5.7 million iPhones in China, 14 per cent fewer than it did in the second quarter in 2018. This was a dramatic drop in comparison to the estimated 6.5m iPhones it sold in the first three months of 2019.
This isn’t an unusual pattern across the board, however. “The third quarter was down too, but so was revenue in Europe and Asia, so we cannot look at China in isolation here,” says Annette Zimmermann, research vice president at Gartner. “Apple’s iPhone shipments have been declining for several years now and 2019 won’t be different. Apple is only playing in the high end of the market.”
No. 2 iPhone market in the world
Based on shipment estimates from Canalys, China is Apple’s second largest smartphone market. “Apple shipped 16 per cent of iPhones to China in the first half of 2019, just after the US’ 35 per cent,” says Mo Jia, research analyst at Canalys. While iPhone sales have been slowing, China is still a hugely important market for the company’s revenue, with 20 per cent of its revenue coming from China alone. “It is the second largest market for iPhone sales after the US market,” says Zimmermann. “They still sell more iPhones there than in Western Europe.”
Just 9 per cent market share
While the iPhone dominates some markets, the company has struggled to make a significant dent in China where it only has a nine per cent market share. Apple lags behind big Chinese manufacturers like Huawei, which sits pretty at the top with a 34 per cent market share, followed by vivo (19 per cent), Oppo (18 per cent) and Xiaomi (12 per cent). “China carriers, like China Mobile, have in recent years dramatically reduced the upfront subsidies they place on Apple iPhone in retail stores at point-of-sale,” says Mawston. “Pricier iPhones mean lower sales. Chinese consumers have also developed a taste for local Chinese brands, like Huawei, and this has also dented the iPhone.”
17 per cent revenue growth
It’s not all bad news for Apple, however. In July, CEO Tim Cook revealed in a conference call with analysts that Apple’s revenue grew 17 per cent for non-iPhone sales in mainland China. Considering that iPhone sales have been slowing all over the world, it’s no shock that Apple wants to keep China as its second biggest iPhone market, especially with the US-trade tariffs potentially harming its stronghold in the US.
“The US-China tariff could damage Apple’s profitability in the US market mostly as the government hasn’t announced tariffs related to Apple’s products yet,” Jia says. “However, under the background of the US-China trade war, Apple needs to act more carefully and thoughtfully in both markets, which is getting increasingly challenging.” The majority of Apple’s products are manufactured in China and the company has already begun looking at moving up to 30 per cent of its production out of the country. Back in June, Apple told US trade representative Robert Lighthizer that the US-China trade tariffs would hurt its ability to contribute to the US economy.
29 per cent of the global market
China is an economic powerhouse, with the biggest smartphone market in the world. According to Canalys, China accounts for 29 per cent of the global smartphone market, selling an enormous 100.6m handsets in the third quarter of 2018 alone. And other companies have already felt the wrath of offending China’s spending power.
Back in August, Versace released a line of t-shirts that implied that Hong Kong and Macau were independent territories, leading to extreme brand backlash. Versace’s China ambassador actress Yang Mi instantly cut ties with the company. And in November last year, several major department stores and online retailers in China stopped selling Dolce and Gabbana branded items. Consumers boycotted the brand after it launched an advertising campaign depicting a Chinese woman struggling to eat pizza and spaghetti with chopsticks. The company hasn’t been able to recover in the region ever since the fallout, and it has seen a marked decline in sales. It’s no surprise why Apple wouldn’t want to follow suit.
This article was originally published by WIRED UK
