In iPhone Battle Between Apple and FBI, China Looms Large

The disagreement between Apple and the FBI over iPhone encryption is actually but one play in a much larger chess match concerning the company's future.

Looming over the conflict with the FBI hovers the prospect of China, Apple's most significant market, where revenues grew an exponential 84% in 2015.

Anything Apple gives the US government, China will demand as well. In fact, what really concerns Apple is that the Chinese may demand it anyway. And as a nation they have proven to be far less willing to acknowledge the sensitivities which Apple routinely cites as justification for actions in western markets. JL

Li Yuan reports in the Wall Street Journal:

Apple's business has been a rare bright spot among multinational tech companies in China. In fiscal 2015, its revenue in China soared 84% to $58.7 billion. In the rest of the world, it grew 16%. Since China emphasizes national security more than personal-data protection, tech companies may well be required to follow the authorities' orders. What if the Chinese government asked Apple to do the same thing? Could Apple say no?
Apple's refusal of the Federal Bureau of Investigation's request to help unlock a shooter's iPhone has been a hot topic not only in its home country but in its biggest foreign market: China. Some Chinese have questioned whether the move is a marketing stunt, but others have supported Apple for standing up to the government -- something unimaginable for Chinese companies. Some also have asked: What if the Chinese government asked Apple to do the same thing? Could Apple say no?
Apple has alluded to this issue, without naming China. In its filing to a federal court in California last week, Apple warned about the dangers of building a backdoor into the iPhone. "Once developed for our government, it is only a matter of time before foreign governments demand the same tool," the filing says.
Benjamin Qiu, a partner in law firm Loeb & Loeb's Beijing office, says if Apple were to lose the battle with the FBI, China's government would have every reason to make similar requests.
"Compared to the Chinese government, FBI is a pushover," he says.
China's State Internet Information Office, which regulates the Internet, didn't respond to requests for comment.
On its privacy Web page, Apple says it "has never worked with any government agency from any country to create a 'backdoor' in any of our products or services."
Chinese technology companies are used to accommodating their government's demands. Executives say they have to surrender whatever user information the government requests, and abide by frequent updates on content to be censored.
Says an executive at one Chinese Internet company, "When government says, 'Jump,' we're expected to ask, 'How high?' "
Increasingly, Beijing is trying to regulate Western tech companies in a similar fashion.
A new Internet regulation, effective next week, bars foreign companies from publishing online content in China without prior approval. A draft Cyber Security Law, under review, would require Internet network operators to provide authorities with technological support for national security and criminal investigations -- which Amnesty International, a rights group, says could make it easier to involve companies incensorship and surveillance.
"Since China emphasizes national security more than personal-data protection, tech companies may well be required to follow the authorities' orders," says Yun Zhao, a law professor at the University of Hong Kong.
Edward Snowden's revelations that the U.S. government tapped into electronics gear overseas to spy on other governments have fed fears about foreign technology in China. As a result, many U.S. tech companies have lost market share in a critical market.
Apple's business has been a rare bright spot among multinational tech companies in China. In fiscal 2015, its revenue in China soared 84% to $58.7 billion. In the rest of the world, it grew 16%.
But Apple, like others, faces increasing scrutiny from China's government and state-run media. In 2014, after state television called the iPhone a "national security risk," Apple moved Chinese customers' data from overseas into a domestic facility operated by state-run China Telecom. Some critics said the move could make Apple products less secure.
At the time, Apple said the move would improve performance for its Chinese customers, adding that the data are encrypted and not accessible by China Telecom.
Jonathan Zdziarski, who researches Apple's software security, posted on Twitter that Apple stores iCloud data on China Telecom with the encryption keys outside the country. "This makes sense and reduces risk of data breach," he wrote.
Still, Chinese authorities have appeared eager to make Apple seem cooperative.
In an English poston its Twitter account in January 2015, People's Daily, the Communist Party newspaper, wrote "#Apple has agreed to accept China's security checks, 1st foreign firm to agree to rules of Cyberspace Admin of China." The post was accompanied by a photo of Apple Chief Executive Tim Cook shaking hands with Lu Wei, head of the State Internet Information Office.
All telecommunications manufacturers need to submit their products for government security testing in China, as in other countries, says a person close to Apple.