April 2, 2013 7:15 pm

Apple bends to the will of Beijing

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iphone 5 china©AP

In the battle of wills between Apple Inc and the Chinese Communist party there is now a clear winner.

On Monday, Apple chief executive Tim Cook issued a “sincere” apology for his company’s perceived arrogance and disregard for the concerns of Chinese customers following weeks of withering attacks from the country’s state-controlled media.

Apple sales growth in China

Apple sales growth in China

Apple’s kowtow was actually the third public statement from the technology company since March 15, when an annual consumer affairs programme on China Central Television slammed its after-sales service for discriminating against Chinese customers.

The tepid and defensive tone of Apple’s first two responses and its initial reluctance to take action to remedy the complaints only encouraged an apparently co-ordinated state media campaign of vitriol.

“Apple seems to have been completely unprepared to face this battle,” says Wu Weihua, a crisis management expert and vice-president at Shunya Communication Group. “Because of the superiority of its products and dominant global market share Apple didn’t pay extra attention to China. The difference in China from elsewhere is that a public relations problem is usually a political problem.”

When China’s quality control authorities and state-run commercial watchdog stepped into the fray last week citing Apple for minor infringements of warranty regulations, it showed this was a bigger fight and one that Apple was unlikely to win.

“It seems quite clear that there is more going on here than just CCTV wanting to protect consumer rights,” says Duncan Clark, chairman of BDA, a technology-focused consultancy. “The symbolism of Apple is very powerful and it could be that this attack is being used as a message to all western companies that they must pay tribute to the government and co-operate.”

The annual CCTV programme, timed to coincide with world consumer rights day, has become legendary among global companies with large China operations because they are regularly singled out in the March 15 programme.

“In the run-up to the ides of March each year the PR teams of major companies spend a huge amount of time worrying and preparing their response just in case they end up in the crosshairs,” says one public relations executive at a large technology company.

The programme also highlights problems at Chinese companies but the focus tends to be on foreign brands. Major state-owned Chinese companies are rarely featured.

International companies like Hewlett-Packard, Hyundai, McDonald's and Carrefour have all been targeted on the programme for relatively minor consumer complaints and most quickly issue public apologies and vow to remedy problems.

On this year’s show, the German auto giant Volkswagen was also accused of selling cars with faulty gearboxes but in contrast with Apple it responded almost immediately by issuing a recall for more than 380,000 vehicles in China.

It is unclear exactly how the decision is made by CCTV to target particular companies but people who have dealt with the state broadcaster say there is often a shakedown element involved in programming choices.

People who have dealt with the state broadcaster say companies – like Apple – that do not spend large amounts on advertising are considered fair game. In some cases negative stories can be quietly shelved in exchange for bribes to the right person or promises of a major ad campaign, those people say.

But this year, the subsequent fusillades from state media suggest there is a more powerful force behind the campaign targeting the iPad-maker.

Lending weight to that theory is the fact that a concerted attack on Google that eventually led to its very public exit from China began in 2009 with a similar CCTV programme accusing Google of facilitating web searches for pornography.

That soon evolved into attempts to force the company to submit to Beijing’s stringent online censorship regime and culminated in hacking attacks aimed at stealing Google’s source code.

Google resisted pressure from Beijing and, at the time, its executives told the Financial Times that they believed the campaign was an attempt by the Chinese government to erect “non-tariff trade barriers” and exclude the company completely from China, where it was then the market leader in internet search.

Today, Google trails Chinese competitors in many online services in China. Analysts now wonder whether Apple will be subjected to a similar campaign that could also drive the company to leave its second-biggest market. Apple recorded $23.8bn of sales in China in fiscal 2012, accounting for more than 15 per cent of global revenues.

“Apple is in a very sensitive position because it has such a powerful appeal to Chinese consumers and that makes the Chinese government nervous,” says Mr Clark. “Any momentum in society that isn’t directed by the Communist party or is difficult for it to control is unnerving.”

Apple’s enormous success in the country emphasises to Chinese leaders the fact that China has been unable to produce any similarly innovative and powerful consumer companies of its own, despite decades of state-directed attempts to foster such innovation.

But if this is the start of a co-ordinated government campaign to kick out Apple, the government will have to be wary of pushing things too far.

In a country where scandals over poisoned baby formula, fake brake pads and toxic toothpaste are commonplace, the state media campaign over Apple warranties was criticised by much of the Chinese public as trivial.

“You cannot let all of these domestically manufactured fraudulent goods off the hook when you could so easily investigate them, then turn a harsh and uncompromising eye on a mobile brand that leads the world in overall quality,” Chinese writer Li Chengpeng wrote in a scathing blog directed at CCTV. “Those enterprises are bad but what you’re doing is disgusting.”

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