Here’s Why Apple Is In Trouble In China (And Why It Can’t Be Fixed)

Image via Flickr/ SimonQ錫濛譙

Apple Inc. (NASDAQ:AAPL) is in trouble in China, and the company’s future may rest on decisions being made at the highest level of the country’s government. China has become a major part of Apple sales, and the company is concentrating more and more of its resources on the country.

According to a recent report, Apple could be sending sensitive, and possibly national security impairing, information to U.S. intelligence agencies. The Cupertino company has fervently denied the claims, but it’s still in trouble with the Chinese government and the Chinese public. This is a problem that is not going away, and Apple investors need to ready themselves for a rocky period in China.

Apple Suspected Of Leaking State Secrets

The head of the online security department at the People’s Public Security University of China, Ma Ding, said that the location tracking features of the iPhone could be used to leak state secrets and might be a threat to state security. Apple, in a statement released this morning, said that it does not and will never allow government agencies a back door into its technology.

Tech companies have lied about their exposure to intelligence gathering in the past, and in some cases they were legally bound to lie about the activities of government agencies. Apple may or may not be involved in intelligence gathering, but the company’s statements on the matter are certainly not a gauge of its involvement. If the NSA had an iPhone backdoor, it would not neglect an iPhone backdoor gagging order.

Apple Can’t Be Saved

Apple is the most visible brand in American dominance of worldwide electronics and any friction between China and the United States is going to result in problems for the company. Assuming a generally accepted forecast of massive Chinese growth in the coming years, there will be many diplomatic problems on the world stage. American companies are going to pay for them in China, just as Chinese companies will pay around the world.

If Chinese nationalism becomes more fervent, the country’s population may begin buying phones based on the origin of the company. The government may sanction or warn against using the phones in the midst of various crises, and it may restrict their usage in positions where national security is important. This already happened in the United States after a suspected backdoor in Huawei devices was discovered.

Apple is not immune from the vagaries of international diplomacy, and its iconic brand may indeed make it more vulnerable than most companies. This doesn’t mean that Apple will fail, it means that its success in China is based on unpredictable events spurred by political decision making. Apple cannot be saved from its trouble in China, but it will still sell millions of smartphones. Investors should weigh their expectations accordingly.

Disclosure: Author represents that he has no position in any stocks mentioned in this article at the time this article was submitted