How Apple conquered China and learned to think like the Communist Party.
BEIJING - A friend in Beijing recently told me a story about the time a China Telecom technician came over to install the Internet connection for her Apple laptop. The man, an experienced worker, puzzled over the slim, silver device. He picked it up gingerly, holding it away from his body as one might inspect a suspicious package. After a few minutes, he set to work, but then grew frustrated when he couldn't find the familiar pull-down menus to configure the connection.
That was just three years ago. Today, it's highly unlikely that any Chinese technician would be similarly flummoxed. Since the first Apple Store opened in Beijing on July 19, 2008, the company has made astonishingly rapid inroads into the Chinese public's pocketbooks and imagination. In any high-end coffee shop like Starbucks or Costa Coffee in central Beijing or Shanghai, the ratio of Apple devices (iPhone,iPad, MacBook, etc.) to non-Apple devices is often more than 1-to-1.
Apple now has four flagship stores in China -- two in Beijing, two in Shanghai -- and plans to open an additional store in Shanghai and its first Hong Kong location within a year. There are also hundreds of licensed Apple resellers in major Chinese cities, as well as many more unlicensed venders (including the elaborate fake "Apple Store" in Kunming unmasked two weeks ago by an American blogger). And these stores are packed with customers: As the company's chief operating officer, Timothy Cook, revealed on a recent earnings call with reporters, "Our four stores in China [are], on average, our highest traffic and our highest revenue stores in the world." Each attracts as many as 40,000 people daily (to accommodate crowds, Apple's stores in China are designed to be much larger than in the United States). From 2010 to 2011, revenue in greater China has ballooned 600 percent, totaling $8.8 billion for the first three quarters of fiscal year 2011.
And yet the same company that enjoys such a sterling, virtuous image in the global press and that's now making buckets of cash in China is precisely the one singled out by China's fledgling civil society groups for its alleged indifferenceto labor rights and environmental enforcement, as well as an apparent tendency toward secrecy and obfuscation. In a nutshell, just as Apple has been consolidating its success in China, it has been acting depressingly like the Chinese Communist Party.
So how did this happen? As in the United States, Apple's extraordinary success in China owes to the fact that it's much more than a device maker; it's a dreammaker. But it has had to edit its dream a bit to translate to a Chinese audience. In the United States, after all, Apple launched its first Macintosh computer with an iconic 1984 Super Bowl ad in which, with a nod to George Orwell, a roomful of pale, listless drones stares unblinkingly at a projection of their leader on a giant TV screen. "Today we celebrate the first glorious anniversary of the Information Purification Directives," his voice crackles. "We have created for the first time in all history a Garden of Pure Ideology … secure from the pests of any contradictory force.… We are one people, with one will, one resolve." Just then, a chiseled blonde in red track shorts sprints down the center aisle and hurls a sledgehammer at the screen, shattering the illusion of unison. The voice-over intones: "On January 24, Apple Computer willintroduce Macintosh. And you'll see why 1984 won't be like 1984."
From the beginning, Apple positioned itself as a righteous upstart, a firebrand challenge to authority, and to the presumably evil dominance of behemoths like IBM and Microsoft. Its 1997 ad campaign "Think Different," featuring theDalai Lama and Martin Luther King Jr. among other famous iconoclasts, encapsulated the company's concept of itself. As Apple grew larger and more established, its carefully crafted image evolved, but it preserved a rebellious streak. Even today, when Apple is in no way an underdog -- in fact, it's now the largest computer maker in the world -- its image still retains a bit of that upstart sheen.
Of course, none of that is an easy sell in China, where the Dalai Lama is a statecriminal. Nor is it a simple matter to purchase airtime on Chinese state-run TV stations for ads mocking "Information Purification Directives." A decade ago, Apple did run a pared-down version of its Think Different campaign in China, but it fell flat largely because, as David Wolf, CEO of the corporate strategic communications firm Wolf Group Asia and author of the blog Silicon Hutong, explains: "Being a rebel is so obviously not the aspiration of the people who can afford these things."
About three years ago, however, Cupertino rolled up its sleeves and began to focus on cracking the China market. Apple staffed up its Beijing office, opened its first store in time for the 2008 Beijing Olympics, and rethought its marketing scheme; in Chief Operating Officer Cook'swords: "We wanted to understand that market and understand the leversthere."
Theresult is that Apple's image in China now emphasizes not rebellion, but luxury --or as Wolf puts it, "exclusivity." Its gorgeous glass-walled storesare located next to high-end clothing boutiques like Armani, Versace, and BMW Lifestyle. Apple is seen as the choice of "top white-collar professionals,"as stylish 30-something Lily Ou told me, glancing up from a row of brightly colored iPhone cases at Beijing's Sanlitun Apple Store. Ou is a sales manager for an international food distributor. "I like to show off my Apple identity,"she said.
The brand update has been helped along by the availability of cheaper options: the iPhone and iPad, which cost significantly less than laptops. Today an iPhone 4 16GB sells for 5,000 yuan, or about $775. Of course, that's still an extraordinary sum in China. By comparison, a simple Lenovo or Nokia phone typically runs less than $100 in China. This in a country where the per capita income in 2010 was just $4,260, according to theWorld Bank. An iPhone, let alone an iPad or MacBook, is no casual purchase.
But like any luxury good, the high price and relative scarcity -- and sense of exclusivity that creates -- is part of its appeal. Before Apple products are released officially in China, a limited number are smuggled in through a vast gray market.Last summer, a few months before the iPad had even been released on the mainland, I noticed one young woman decked out in a shimmering silver miniskirt, red halter top, and fake eyelashes, and followed by a small camera crew, posing with her contraband (i.e., not-yet-released, not necessarily fake) iPad against the spiral staircase of Beijing's Guomao Starbucks. She was showing off, and recording for posterity, her lovely device, with languid poses that called tomind (or tried to) ads for luxury automobiles.
But on the other side of Apple in China is Jia Jingchuan, a 27-year-old native of the tiny village of Heze in Shandong province. He does not own an iPhone, but hundreds or even thousands have passed through his hands. In May 2007, he moved to Suzhou, a city of 6 million in neighboring Jiangsu province, and took a job at a factory operated by the Taiwanese company Wintek, which makes parts for iPhones. At first, he was thrilled: "When I first knew that we were going to work with Apple, I was very proud," he told me, speaking by telephone from Heze. "It meant we will get a lot of ordersand I will make more money" -- about $200 a month -- "and send more money back home."
But within two years, his excitement soured. As orders for glass iPhone touch screens went up, the factory bosses began to have workers wipe screens with a new and apparently more efficient cleaning agent. But the new formula contained n-hexane, a toxin that causes nerve damage. After suffering dizzy spells and intense pain that left him unable to work, Jia was hospitalized for 10 months beginning in August 2009, and 136 other workers at the same plant were also severely injured. Wintek paid for Jia's initial hospital care (the company reported shelling out $1.5 million for workers' compensation in the case), but after he was released, he says it put pressure on him and other workers to resign and sign no-liability forms so that the company would not have to cover future medical expenses, a charge that Wintek denies.
As of July 2011, Jia had no job, faced mounting medical bills, and worried he may be too ill to work again. On June 7, 2011, Jia's family paid (out of pocket) for him to visit a specialist at a Beijing hospital, where doctors gave a bleak prognosis for the likelihood that the symptoms of his nerve damage -- weakness, dizzy spells, frequent numbness in his lower legs, severe sensitivity to hot and cold temperature changes, continually sweaty palms -- will ever abate. "As the only son of my family, I attended college, which is supposed to be an achievement, something my family is very proud of," he told me. "My daughter is 1 and a half years old now, and I want to provide her a good life. But now I can't really do anything due to my health issues."
A spokeswoman from Apple declined to comment directly, but referred me to its Apple Supplier Responsibility: 2011 Progress Report: "We required Wintek to stop using n-hexane and to provide evidence that they had removed the chemical from their production lines.... In parallel, Apple has verified that all affected workers have been treated successfully, and we continue to monitor their medical reports until full recuperation." Indeed, the factory has ceased using n-hexane, but Jia's experience calls into question Apple's claim that it is continuing to monitor the recovery of sick workers. Currently, he says he pays 400 to 500 yuan monthly (about $60 to $80) for his own medical care; "Now I feel great disappointment. Apple has been so cold and nonresponsive to us, the first-line workers of its product."
Tragically, examples of labor violations, heath risks, and pollution at Chinese factories are all too common. Not only does the country have lower standards than the West, but even the rules on the books are routinely flouted.
In recent years, Apple's Chinese suppliers have been involved in a series of labor and environmental infractions, from a string of suicides linked to poor or inhumane working conditions at plants managed by one of its major suppliers, Foxconn, to allegations by green groups that chemicals leaching out from its factories are polluting China's fields. True, Apple is hardly alone among international companies with Chinese factories in having problems arise from the practices of its suppliers. But what makes Apple singular, say Chinese environmental and labor rights activists, is its sluggishness in responding to complaints and its secretiveness about just which factories are in its supply chain.
Ma Junis one of the leaders of the Green Choice Alliance, a coalition of 36 Chinese NGOs that tracks pollution reports among international brands operating in China.In January, they released a report focusing on global IT companies that ranked Apple dead last among 29 companies in responding to inquiries about pollution and workers' safety. Last winter, Ma met with Jia and helped him pen a letter about working conditions and medical compensation to Apple CEO Steve Jobs. It went unanswered. So did a second letter.
According to Ma, most multinational companies go through an evolution in dealing with complaints presented by Chinese civil society groups: "from nonresponsive, to somewhat resistant, to at least listening, to a proactive response." Two examples of the latter category would be Siemens and Vodafone, which now use the NGO's database to check potential suppliers before renewing contracts. Apple, however, has stayed resistant, fighting off attempts by others to uncover whether factories where workers have been poisoned or where pollution is extreme are their suppliers. "They said, it's our long-term policy not to disclose our supply chain," Ma told me. "So no one can make any public scrutiny? No one can really know what is really happening?"
Richard Brubaker, a Shanghai-based supply-chain consultant who follows sustainability issues, has a similar impression: "Name another firm that has ... billions in reserves and [continues to work] with suppliers who have a clear record of failure to comply with Apple's own codes of conduct."
As for Jia, now resting at his parents' home in the tiny village of Heze, he says: "I never feel the so-called 'human rights protection' and 'respect' that have always been advocated by American corporations. I only feel hypocrisy."