Censorship, surveillance and profits: A hard bargain for Apple in China – Business Standard

On the outskirts of this city in a poor, mountainous province in southwestern China, men in hard hats recently put the finishing touches on a white building a quarter-mile long with few windows and a tall surrounding wall. There was little sign of its purpose, apart from the flags of Apple and China flying out front, side by side. Inside, Apple was preparing to store the personal data of its Chinese customers on computer servers run by a state-owned Chinese firm.

Tim Cook, Apples chief executive, has said the data is safe. But 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. 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 theyre meant to secure. Internal Apple documents reviewed by The New York Times, interviews with 17 current and former Apple employees and four security experts, and new filings made in a court case in the US last week provide rare insight into the compromises Cook has made to do business in China. Apple now assembles nearly all of its products and earns a fifth of its revenue in the China region. But just as Cook figured out how to make China work for Apple, China is making Apple work for the Chinese government.

Cook often talks about Apples commitment to civil liberties and privacy. But to stay on the right side of Chinese regulators, his company has put the data of its Chinese customers at risk and has aided government censorship in the Chinese version of its App Store.

Chinas leader, Xi Jinping, is increasing his demands on Western companies, and Cook has resisted those demands on a number of occasions. But he ultimately approved the plans to store customer data on Chinese servers and to aggressively censor apps, according to interviews with current and former Apple employees. Apple has become a cog in the censorship machine that presents a government-controlled version of the internet, said Nicholas Bequelin, Asia director for Amnesty International, the human rights group. A Times analysis found that tens of thousands of apps have disappeared from Apples Chinese App Store over the past several years, more than previously known, including foreign news outlets, gay dating services and encrypted messaging apps. It also blocked tools for organising pro-democracy protests and skirting internet restrictions, and apps about the Dalai Lama.

And in its data centers, Apples compromises have made it nearly impossible for the company to stop the Chinese government from gaining access to the emails, photos, documents, contacts and locations of millions of Chinese residents, according to the security experts and Apple engineers.

The firm said that it followed the laws in China and did everything it could to keep the data of customers safe. An Apple spokesman said that the company still controlled the keys that protect the data of its Chinese customers and that Apple used its most advanced encryption technology in China . Apple added that it removed apps only to comply with Chinese laws. These decisions are not always easy, and we may not agree with the laws that shape them, the company said.

No Plan B

In 2014, Apple hired Doug Guthrie, the departing dean of the George Washington University business school, to help the firm navigate China, a country he had spent decades studying.

One of his first research projects was Apples Chinese supply chain. Guthrie concluded that no other country could offer the scale, skills, infrastructure and government assistance that Apple required. Chinese workers assemble nearly every iPhone, iPad and Mac. Apple brings in $55 billion a year from the region, far more than any other American company makes in China. This business model only really fits and works in China, Guthrie said. But then youre married to China. China was starting to pass laws that gave the country greater leverage over Apple, and Guthrie said he believed Xi would soon start seeking concessions. Apple, he realised, had no Plan B.

Golden Gate

In November 2016, China approved a law requiring that all personal information and important data that is collected in China be kept in China. It was bad news for Apple, which had staked its reputation on keeping customers data safe. While Apple regularly responded to court orders for access to customer data, Cook had rebuffed the FBI after it demanded Apples help breaking into an iPhone belonging to a terrorist involved in the killing of 14 people in San Bernardino, Calif. Apple encrypts customers private data in its iCloud. But for most of that information, Apple also has the digital keys to unlock that encryption. The location of the keys to the data of Chinese customers was a sticking point in talks between Apple and Chinese officials, two people close to the deliberations said. Apple wanted to keep them in the US; the Chinese officials wanted them in China. The cybersecurity law went into effect in June 2017. In an initial agreement between Apple and Chinese officials, the location of the keys was left intentionally vague, one person said.

But eight months later, the encryption keys were headed to China. It is unclear what led to the change.

Documents reviewed by The Times do not show that the Chinese government has gained access to the data. They only indicate that Apple has made compromises that make it easier for the government to do so.

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Censorship, surveillance and profits: A hard bargain for Apple in China - Business Standard