Apple of Discord in China

The official Chinese media assault on Apple discussed in the previous China Insider column continued throughout the week. CCTV Evening News, watched by tens of millions every night, broadcast reports nearly every night criticizing Apple while the People’s Daily newspaper ran multiple stories attacking the company, including one accusing it of “incomparable arrogance.”

On Monday, Xinhua reported that Apple would “face enhanced legal supervision in China” because of “imparity clauses in its warranty policies” while the China Consumer’s Association has demanded the company “sincerely apologize to Chinese consumers” and “thoroughly correct its problems.” The core, stated issue is that Apple is not in full compliance with Chinese law that requires warranties on computer sales to be at least two years. Interestingly, a European Union official recently said that Apple has a similar problem in the E.U.

The tabloid newspaper The Global Times, not usually known for its restraint, ran an editorial on Friday headlined “For Apple, business must stay business”:

Apple has won respect from Chinese consumers with its perseverance in developing leading technologies and styles. But the company is not impeccable…

Apple should not follow the media speculation and consider itself the target of political persecution…

If the issue developed into a head-on confrontation between Apple and the Chinese authorities, the U.S. company will never be a winner, nor will China necessarily do well. Of course, Apple will suffer the most, as its products are already facing increasing competition in China.

There are many theories as to why official media is attacking Apple, including payback for Huawei’s problems in the United States; a reaction to new U.S. government procurement rules that will limit the purchase of Chinese-made information technology products, and protectionism for domestic handset makers (almost all of whom rely on some variant of Google’s Android to power their phones).

Many Chinese netizens have mocked the state media’s attacks, especially the comments by a People’s University law professor that the missing piece in Apple’s logo may be “responsibility and conscience to Chinese consumers,” but Apple can not win this fight, regardless of the merits or support from some consumers.

Apple looks to have a serious government and public relations problem that will require a much more proactive and forthright response than what the company has done so far; dribbling out a petulant apology akin to its response to the problems with the 2010 iPhone 4 antenna will not work in China.

The standard response by a foreign company in China facing this kind of onslaught is to make public and private apologies, emphasize its commitment and contributions to China and dispatch senior executives from headquarters to make the rounds of the relevant Chinese government entities. Apple may also have to launch a new service for China, one it may also be able to sell to other foreign enterprises. It’s name The iKowtow.

Investors have reason to be concerned. Between this brouhaha, the increased competition from Samsung and other high-end Android phones and the crackdown on corruption that is denting the gifting culture, Apple’s China results for its current quarter may be disappointing, even though this is the first full quarter in which the iPhone 5 has been on sale in China.

There is of course other news in China.

ECONOMIC DATA ON MONDAY was moderately positive, though consumption was light:

It appears that the efforts by the new government to crack down on corruption and to moderate official extravaganza may have started to dampen retail sales.

Beijing, Shanghai and several other cities released details of the new measures to control real estate prices, including strict implementation of a 20 percent capital gains tax. The new rules appear to be weaker than many had feared and there is much skepticism in the market that they will slow rising property prices.

China goes on vacation for several days this week to observe the Tomb Sweeping Festival so it should be a relatively quiet week. The mobile phone revolution has now reached the dead. According to Xinhua, some graveyards now have tombstones affixed with two-dimensional quick response codes that allow you to point your phone at the code and call up a virtual obituary.

So far there is no word on whether anyone has trademarked “iTombs”.