Why China Is Such an Important Market for Silicon Valley Tech Giants
- China is a lucrative market for large US tech companies.
- In order to operate there, LinkedIn, Apple, and others have abided by the government’s wishes.
- But that’s growing increasingly difficult as its demands intensify amid the nation’s rise in power.
Apple may be famous for its spaceship-like corporate headquarters smack dab in the middle of Silicon Valley.
But thousands of miles west of California, it has another nation altogether to thank for a significant portion of its success: China.
The country has become one of Apple’s most important, and lucrative, markets. The tech giant has grown to rely heavily on contract suppliers for assembling its many popular gadgets — as well as on consumers in the populous nation. Forty percent of Apple’s net sales came from China last quarter, and the country represents about one-fifth of total iPhone sales, analysts estimate.
But that increased reliance puts Apple in a tricky spot, forcing the company to choose between complying with the Chinese government’s desires and missing out on a growing market.
And it’s not just the phone giant: Microsoft’s LinkedIn, Facebook, Disney, Google, and others have made concessions to stay afloat there. After all, missing out on the massive — and growing — market would mean potentially falling behind rivals.
“China is like the legend of Excalibur to Silicon Valley CEOs, the sword in the stone,” Duncan Clark, a Beijing-based tech analyst and author of a book about the Chinese tech company Alibaba, told Time in 2016.
Tech companies have made business decisions based on the party’s demands
LinkedIn in September took down several journalists’ accounts on its China website over content that the government had prohibited, like mentions of genocide against the Uyghur Muslim minority. Concerns about those humanitarian abuses have fueled the US and other nations’ diplomatic boycott of the 2022 Olympic Games in Beijing.
At the time, LinkedIn told one affected journalist, Greg Bruno, that “while we strongly support freedom of expression, we recognized when we launched that we would need to adhere to the requirements of the Chinese government in order to operate in China.”
But eventually LinkedIn gave up and shut down its Chinese site.
Then there’s Apple CEO Tim Cook, who was asked in November about human-rights issues in China. He responded that his firm has a “responsibility” to do business everywhere, including China, and to “acknowledge that there are different laws in other markets.”
Apple also reportedly struck a secret $275 billion deal with China in 2016 to skirt regulatory guardrails. China told the company to display certain disputed territories larger than surrounding areas or lose out on selling its Apple Watch in the country.
China’s ‘Great Firewall’ still bans most US tech
While some companies bend over backward to appease the ruling Communist Party, many don’t have that choice.
China’s “Great Firewall” has squeezed out foreign social-media firms, as the party controls what content its citizens are allowed to see and censors posts that it deems harmful to its cause. Facebook, Twitter, and Google’s YouTube were blocked in 2009 for not complying with the government’s demands, but some Chinese users can still access the sites with a virtual private network.
Facebook has since attempted to make strides in China to no avail, Time previously reported. But it has continued to rake in revenue through advertising by Chinese companies. And in April, the platform got flak for allowing China state ads to run denying persecution of Uyghur Muslims.
Google pulled its search engine in 2010 because it was fed up with censorship demands. But that hasn’t stopped it from trying to sneak back into the market. It also launched an artificial-intelligence research center in Beijing in 2017 and briefly worked on a secret, censored search engine dubbed Project Dragonfly.
“We need to understand what is happening there in order to inspire us. It’s not just a one-way street. China will teach us things that we don’t know,” the project’s head of search told employees at the time, according to The Intercept.
And strained US-China relations aren’t helping anything. Analysts expected some of that animosity to subside under the Biden administration, “and ultimately it’s been the exact opposite,” Wedbush told clients this month.