Apple’s high-stakes negotiations with the Chinese government could complicate Obama’s tough talk on snooping

This post and its headline were updated on March 7 at 11:45am in Hong Kong, based on additional reporting.

US president Barack Obama was sharply critical of China’s newest security demands for foreign companies this week, saying that plans to “snoop and keep track” of users of US-made technology were unacceptable.

Chinese officials are “going to have to change if they are to do business with the United States,” he said in an interview with Reuters.

Beijing is putting heavy pressure on US technology firms who want to do business in China to fork over proprietary source code, provide encryption keys so that Chinese authorities can access user information, and store user data on servers in China. Those demands are focused now on companies that supply domestic banks, but a proposed counterterrorism law would apply to nearly all foreign tech companies doing business in China.

“As you might imagine tech companies are not going to be willing to do that,” Obama said. “I don’t think there’s any US or European firm, any international firm, that could credibly get away with that wholesale turning over of data, personal data, over to a government.”

Obama’s remarks follow a claim by China’s state-run media that the most prominent and profitable technology company in the world has already agreed to Beijing’s demands. A visit by China’s internet czar Lu Wei to Silicon Valley late last year was followed by a Chinese state-sponsored news outlet’s announcement that Apple had agreed to “security checks,” making it the “first foreign firm” to agree to the rules of the cyberspace administration:

Details are still scarce, and there’s widespread disagreement about whether any arrangement between Apple and the Chinese government would entail sharing of source code or other sensitive data.

An Apple spokeswoman told Quartz Friday the company could not comment on the Chinese state media report that names Apple, the company’s meeting with Lu, or any arrangements that it has with the Chinese government. But she pointed Quartz to CEO Tim Cook’s recent speech about how much the company values privacy at a White House cyber-security conference.

Two people briefed on the company’s discussions in China said it had not provided any source code to the Chinese government. Cook has said Apple “will not ever provide a back door, that would be access to a back door,” one of the people told Quartz. The company agreed after Lu’s visit to California to submit its products to the government for approval to sell in the country, just as it has in the past, these people said.

Apple and other tech manufacturers have been subject to regular government inspections of their products in China and around the world for years, analysts say. “Agreeing to allow your products to be security-tested is something that companies do all the time,” said Morgan Reed the executive director of ACT, a trade group that represents 5,000 app companies and IT firms. “There’s a huge difference between doing that and handing over source code, the secret sauce, to a government,” he said. The idea that Apple might hand its code over to the Chinese government “seems highly unlikely and is different from what you do on baseline security testing,” he said.

Other analysts have told Quartz they believe the company could be giving China access to the underlying source code for the iPhone and other devices and services, which could potentially allow Chinese officials to spy on users inside and outside of China. Last summer, Apple started storing China’s iPhone users’ data in China, breaking with other major tech companies who had concerns that such a move could enable the government to surveil users.

The company said that has had no impact on privacy of that data.”Apple takes user security and privacy very seriously,” the company said at the time. “We have added China Telecom to our list of data center providers to increase bandwidth and improve performance for our customers in mainland china. All data stored with our providers is encrypted. ChinaTelecom does not have access to the content.”

The stakes are undoubtedly high for Apple: Its China sales more than doubled to $16.1 billion in the fourth quarter, which helped the company post the biggest quarterly profit in corporate history.

Apple’s negotiating with China could weaken Obama’s position, and makes life even more difficult for other US tech companies, some analysts believe. The wider US tech industry has been lobbying against the Chinese cyber-security regulations, and US secretary of state John Kerry and other US officials sent a letter of complaint to their Chinese counterparts last month.

“Apple does place the Obama administration in an awkward position, as it is one of the largest tech companies in the world and it seems to be willing to open its doors in return for market access,” Ben Cavender, a Shanghai-based analyst at China Market Research Group, told Quartz. “This could definitely make it harder for the administration to effectively argue that companies will not be willing to concede to demands from the Chinese government.”

None of Apple’s competitors, or the tech industry trade groups lobbying the Chinese government, would comment on the topic on the record. But some executives said privately that Apple has a long tradition of acting independently from the industry when it comes to dealing with foreign governments.

“Of course this puts other companies in a vulnerable position,” said Charlie Smith, the pseudonymous co-founder of GreatFire.org, which monitors online transparency, privacy and censorship in China. “Anyone who is a competitor of Apple‘s would not want to lose any kind of competitive advantage to them—so if the Chinese say, ‘share your code, Apple did,’ then they will likely share their code.”

“I don’t understand how companies like Apple get away with this stuff,” Smith added. “Their selfishness and greed may put their customers and everyone’s customers at great risk, not just in China but in other places in the world.”

If Apple, “one of the biggest and most prestigious foreign tech brands, isn’t able to resist Chinese demands, what hope do others have?,” said Jason Q. Ng, a research fellow with Citizen Lab, which studies global security and development. “Calculated pragmatism might lead others like Facebook, who have made numerous friendly overtures to Chinese authorities in past months, to cut similar deals for access to the Chinese market.”

 

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