Apple and Google Are Doing Business in China Very Differently, and the Stakes Are High
Apple store.

To say that Apple Inc. (AAPL) and Alphabet Inc./Google (GOOGL) have taken very different approaches to engaging China in recent years is quite the understatement. A new announcement from Apple drives home just how different the company's mainland Chinese strategy remains from Google's, as its sales to the country close in on $50 billion.

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This week, Apple disclosed it's building a data center in the Chinese province of Guizhou, as part of a broader plan to invest $1 billion in the region. Though the data center could improve the performance of iCloud services Apple delivers to its now-massive Chinese user base, the company's primary motivation appears to be a wish to comply with a new Chinese cybersecurity law that among other things restricts the movement of Chinese users' data outside of the mainland.

The law effectively means that user content such as photos, documents and messages need to be stored on Chinese servers. Apple will retain control over its new data center's encryption keys. However, as the Wall Street Journal notes, it isn't clear if the company will have access to stored data, given that a company owned by Guizhou's provincial government will be operating the facility.

This isn't the first time that Apple has gone out of its way to keep Chinese regulators happy. In 2014, the company agreed to store some of its data at China Telecom Corp. (CHA) facilities to address security concerns. And its Chinese App Store has been willing to remove apps that have draws the ire of Beijing regulators. The Apple News app was blocked in 2015, and the New York Times' app was pulled last December.

Many of Apple's Chinese investments are also arguably done with political goals in mind, even if they're not the only reason that they're made. The company's Guizhou spending plans follows a March commitment to spend over $500 million on Chinese R&D centers, and a $1 billion 2016 investment in Chinese ride-sharing leader Didi Chuxing.

In addition, Apple PR efforts within China show a high level of sensitivity to both public and government opinion. In 2013, CEO Tim Cook issued a formal apology to Chinese customers for Apple's warranty policies, a week after state-run media began criticizing the company over the matter. The only instance of Cook issuing an apology like that outside of China was in 2012, over the botched Apple Maps launch. And while Apple has been outspoken at times on U.S. political issues, it has mostly avoided publicly criticizing Beijing's policies.

To be fair, just as Apple has strong incentives to keep the Chinese government pleased, the reverse is also true. The company employs a substantial number of Chinese workers via its R&D centers and retail stores, and more importantly is indirectly responsible for hundreds of thousands by having the lion's share of its hardware manufacturing done in China, via contract manufacturers such as Foxconn and Pegatron. The many subsidies and perks local governments have provided (generally with Beijing's approval) to contract manufacturers building iPhone plants show that appeasement is very much a two-way street.

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