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Apple Abandons Its Own Core Values to Sell Phones in China

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As its first data center in China nears completion, Apple released a statement to address many of the concerns raised about hosting customer data on Chinese soil that will actually be managed by a state-run company.

“In China, the law stipulates that iCloud data belonging to its nationals must remain in the country. We comply with the law, but we make no compromises on user security. We retain control of the encryption keys for our users’ data,” the statement read.

Apple’s encryption is key to its core value of privacy, and CEO Tim Cook is taking great pains to explain that, although customer data may be physically stored in China, Apple still holds the keys.

In a Vice News interview, Cook noted that “certain countries, and China is one of them, has a requirement that data from local citizens has to be kept in China.”

“We worked with a Chinese company to provide iCloud, but the keys, which is the key so to speak — pardon the pun — are ours.”

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But Is That True?

The New York Times interviewed current and former Apple employees along with security experts and concluded that Cook’s assertion that Apple retains the encryption keys is simply not correct.

“At the data center in Guiyang, which Apple hoped would be completed by next month, and another in the Inner Mongolia region, Apple has largely ceded control to the Chinese government,” The Times reported.

“Chinese state employees physically manage the computers. Apple abandoned the encryption technology it used elsewhere after China would not allow it. And the digital keys that unlock information on those computers are stored in the data centers they’re meant to secure.”

Authoritarian Governments and Contrasting Faustian Bargains

Doing business in China is becoming increasingly difficult as the Chinese Communist Party tightens its grip. Freedom of expression and assembly is tightly controlled, and activists often disappear after publicly speaking out against the CCP.

Reporters Without Borders ranks China 177 out of 180 countries on its World Press Freedom Index. Only three other countries are less free.

Apple has to walk a fine line if it wants to do business in China. Google found out the hard way when it was forced to strip all Google services apps from its Android operating system before handsets could be sold in China. Google gives away its operating system for free in the hopes that it will make money on services.

Essentially, it is providing its software to more than a billion phones with no compensation.

In 2017, when China’s strict new cybersecurity law required phone data from Chinese citizens to be stored locally, Apple tried to duck and weave to accommodate China’s request.

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Apple assured that “no back doors, meaning ways for the government or other organizations to get around Apple’s encryption protecting the data, would be created in its systems,” The New York Times reported at the time.

Today, it seems that Apple has given control of both the encrypted data and the encryption keys to the government-owned company, Guizhou-Cloud Big Data.

The last time Apple went up against another totalitarian regime, it was a little bit different. In 2019, Russia passed legislation requiring all smartphones to be preinstalled with state-approved browsers, messenger platforms and antivirus services.

That last one is quite troubling, as antivirus applications generally have deep access to a phone’s core system and could potentially retrieve the entire phone’s contents.

Apple’s solution? Let the user decide.

Now, when a Russian iPhone owner sets up their phone, they will be given an option as to whether they want to install these apps. It is assumed that most do not.

But, China is different. Russians only bought about 1.5 million iPhones in the fourth quarter, while the Chinese purchased almost 18 million. In fact, Apple makes approximately $55 billion a year in China — the most of any U.S. company.

Should the U.S. escalate tensions with China to protect American companies?

It is hard not to connect that eye-popping amount of money to Apple’s decision to surrender the keys to sensitive customer data.

Apple is in the business of, well, running a business. It is not required to hold fast to any moral principles nor fight ideological battles. However, its website boldly proclaims that “privacy is a fundamental human right. At Apple, it’s also one of our core values.”

When a company portrays itself as holding to a higher standard, it ought to.

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Eric Nanneman is a business and technology writer with more than 20 years of investment and banking experience, including stints at Bank of America, Charles Schwab, and Goldwater Bank. He was previously securities registered, holding the Series 7, 63, 9 and 10 FINRA licenses.
Eric Nanneman is a business and technology writer with more than 20 years of investment and banking experience, including stints at Bank of America, Charles Schwab, and Goldwater Bank. He was previously securities registered, holding the Series 7, 63, 9 and 10 FINRA licenses.

He graduated from Arizona State and the Pontifical College Josephinum with degrees in English and philosophy. He has one adult son and resides in Phoenix.




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