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Times Joins a Slew of Companies That Can't Crack China

Apple bows to government demand to pull NYT app

January 6, 2017 | Advertising & Marketing

On Wednesday, the New York Times reported that Apple had removed two of its news apps from its app store in China in late December. Apple spokesman Fred Sainz told the Times that the news apps had been found to be "in violation of local regulations." He added that, as a result of those violations, "the app must be taken down off the China App Store," and that they might be restored "when the situation changes."

The Times said it was not given details on what local regulations it had violated, or which authorities had requested that Apple remove the apps. However, the newspaper noted that the removal of the apps closely followed the publication of a report detailing numerous government subsidies and other perks afforded Foxconn, the Chinese electronics manufacturing giant that makes vital elements of Apple's iPhone.

The development was just the latest obstacle faced by the Times in gaining access to China and its potentially lucrative market of news consumers. The Times' website has been blocked in China since 2012, although residents can sometimes use virtual private networks (VPNs) and other workarounds to access forbidden sites and content.

But the New York Times' experience also mirrors that of every large Western media or internet service company that has attempted to establish itself in China.

Facebook and Google—which together form an effective duopoly on digital advertising in pretty much everywhere else in the world—are non-players in China. Facebook has faced an outright ban in the market since 2009, and Google left the country in 2010 after bridling at the government's onerous content control laws. More recently, social media newcomer Snapchat has been blocked from operating in China.

Netflix ended its plans to launch its streaming service in China in October, citing an unfriendly regulatory climate. Instead, the video-on-demand company plans to license its original content to local, already established players.

And in July, US-based ride-hailing app Uber joined the ranks of Western firms beating a retreat from China when it announced it would sell its operations there to local rival Didi Chuxing. Uber's strategy fighting a war of attrition for users against a well-funded Didi proved unwinnable.

In one way or another, all of these Western companies failed to develop an effective strategy to deal with China's tough regulatory climate, competitive local landscape and differences in culture.

Western firms that want to operate in China face the additional challenge of finding a small middle ground where they accept China's tough censorship laws and absence of user privacy without sparking criticism from advocates of free speech and privacy in the West.

Facebook faced such a backlash in November, after the Times reported that it was working on a tool that would allow a third party to suppress content as a way to placate Chinese censorship authorities.

Despite all of these problems, China still remains an enticing prospect for Western companies. eMarketer projects that there will be 754.6 million internet users in the country in 2017, with that figure expected to grow to 868.8 million by 2020.

Apple is actually one of the few US company success stories, having amassed a fortune from iPhone sales there. But even that triumph appears to be a fleeting one, with recent data indicating that demand for Apple's flagship product is falling amid strong competition from domestic manufacturers.

While the government has allowed Apple to more easily sell its hardware, it has taken a harder tack against its software and services. Regulators have demanded that the company shutter its iBooks, iTunes and Apple News service, and Apple has acquiesced to all such requests so far.

As a result of the absence of tough overseas competition, a troika of domestic companies have emerged to fill the void—among them Baidu, Alibaba and Tencent, known collectively as the BATs. But even these firms have to tread lightly to ensure they stay on the right side of government regulators who have recently ramped up information control efforts and scrutiny of large internet businesses under President Xi Jinping.

China may be a market that is already lost to Western players which, even if they could overcome high regulatory hurdles to enter the country, would now have to battle well-entrenched homegrown firms.

—Rahul Chadha

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