WEBVTT - Apple's $50 Billion Dilemma in China

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<v Speaker 1>Hong Kong's pro democracy protests have raged on for several

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<v Speaker 1>months now, and with tensions flaring, China's cracking down on

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<v Speaker 1>anything and anyone seemed to promote the movement. That's gotten

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<v Speaker 1>several American companies in trouble, both at home and abroad.

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<v Speaker 1>There's new fall out of this evening in the NBA's

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<v Speaker 1>firestorm with China. The NBA tonight fighting back after being

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<v Speaker 1>blasted for caving to China's communist government. Why did Act

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<v Speaker 1>Division Blizzards suspend this guy? I guess it was to,

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<v Speaker 1>you know, to butter up to China. Wasn't But few

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<v Speaker 1>US companies depend on China's fourteen trillion dollar economy like Apple,

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<v Speaker 1>and the company has made a series of moves that

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<v Speaker 1>critics say bowed to the country's totalitarian government, including removing

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<v Speaker 1>an app for Hong Kong's residents that displayed the movement

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<v Speaker 1>of local police. Today. In the show, Bloomberg editor Alistair

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<v Speaker 1>bar breaks down Apple's dilemm Can the company keep selling

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<v Speaker 1>in China without losing its soul? A, Ma, you're listening

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<v Speaker 1>to Decrypted? Stay with us? Elly? How's it going? Hi?

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<v Speaker 1>I'm good? Do you want to introduce yourself. Yeah, I'm

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<v Speaker 1>Alistair bar I'm an editor on the Tech team in

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<v Speaker 1>the US. I want to start a conversation today at

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<v Speaker 1>the very beginning, maybe about a decade ago, when Apple

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<v Speaker 1>first started selling the iPhone, and it started selling the

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<v Speaker 1>iPhone in China, tell us about the relationship that Apple's

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<v Speaker 1>had with the country. It's been unprecedented, i would say

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<v Speaker 1>for a US company. So iPhones are super super popular

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<v Speaker 1>in China, and they became super super popular relatively quickly,

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<v Speaker 1>but especially around two thousand four fifteen timeframe, when Apple

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<v Speaker 1>made a bigger iPhone and it came out in gold,

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<v Speaker 1>and it was it was a status symbol, and it

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<v Speaker 1>was happening just a time when China was was really

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<v Speaker 1>becoming a lot wealthier and people were emerging out of poverty,

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<v Speaker 1>and there was a massive, huge middle class, and it

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<v Speaker 1>was a super cool status symbol to have an iPhone.

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<v Speaker 1>It was way ahead of most other phones in the world.

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<v Speaker 1>So China really really embraced it, and they sold hundreds

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<v Speaker 1>and hundreds of millions of these these phones. Okay, so

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<v Speaker 1>that was fine for the first few years. China didn't

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<v Speaker 1>seem to have a problem with Apple, but the company

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<v Speaker 1>has gotten into Daisy Year situations over the last few years.

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<v Speaker 1>So selling a fancy gold iPhone in China wasn't particularly controversial.

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<v Speaker 1>But now Apple is a services company, so they have

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<v Speaker 1>a new Apple News Plus service, for instance, that's not

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<v Speaker 1>available in China at the moment. They have the iTunes store,

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<v Speaker 1>they have the Eye bookstore, the bookstore, and those things

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<v Speaker 1>have either never been in China or they were blocked

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<v Speaker 1>pretty soon after they launched. So Apple, instead of just

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<v Speaker 1>making gadgets, is now providing information over the internet, just

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<v Speaker 1>like Google or Facebook has done in a slightly different way,

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<v Speaker 1>but it's still in the eyes of China, that's still

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<v Speaker 1>something that is a threat for sure. And that gets

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<v Speaker 1>us to the recent controversy over an app called hk app. Yes,

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<v Speaker 1>this is a basic mapping app that shows Hong Kong

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<v Speaker 1>on your phone and it shows users where large amounts

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<v Speaker 1>of police are so that they can avoid trouble. That's

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<v Speaker 1>according to the developer, So tell us what happened. So

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<v Speaker 1>originally this is in late September. H k map is

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<v Speaker 1>submitted to Apple's App store, and this is a typical process.

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<v Speaker 1>Developers wait for Apple to decide whether to let it

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<v Speaker 1>in the store. It's a super big deal if they

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<v Speaker 1>get let in the store. So initially it was rejected

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<v Speaker 1>because of technical issues like like how it access payments

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<v Speaker 1>and some other things. The developer then redid the app,

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<v Speaker 1>re submitted it again, and this was in early October,

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<v Speaker 1>and Apple then objected it for helping users evade law enforcement.

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<v Speaker 1>We wrote that story up for sure, because that that

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<v Speaker 1>had very very large political overturns and a lot of

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<v Speaker 1>people are complaining about it on Twitter, and then we

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<v Speaker 1>were on Apple to find out why and whether they

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<v Speaker 1>were going to change their mind. Basically, Apple then went

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<v Speaker 1>back on that and approved the app and led it

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<v Speaker 1>into the App Store. And then soon after that, the

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<v Speaker 1>People's Daily, which is the communist government newspaper they is

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<v Speaker 1>shoed a an opinion piece which was really highly critical

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<v Speaker 1>of Apple, and they they it was quite ominous and

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<v Speaker 1>they said, it's, you know, we we were not sure

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<v Speaker 1>what Apple's intentions are here. They may they may be

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<v Speaker 1>helping people break the law, and so that in China,

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<v Speaker 1>that that type of signal is basically the Chinese government

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<v Speaker 1>coming down in you really hard. So very very soon

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<v Speaker 1>after that, Apple Paul pulled the app again and so

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<v Speaker 1>that that confluence of events really kind of proves that

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<v Speaker 1>Apple basically did that just because the Chinese government wanted

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<v Speaker 1>it gone. You know, I'm taking a look at the

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<v Speaker 1>screenshot of HK Map and it it kind of looks

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<v Speaker 1>like Ways, the traffic app that we use here in

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<v Speaker 1>the States. Um, can you tell me a little bit

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<v Speaker 1>more about that. Yeah, So the developer actually made that

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<v Speaker 1>comparison on Twitter, and and our Apple reporter Mark German

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<v Speaker 1>interviewed the developer as well, and his his point is that,

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<v Speaker 1>you know, Ways is a mapping app and it can

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<v Speaker 1>be used for many many different purposes. You can use

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<v Speaker 1>it to avoid police speed cameras, which in a way

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<v Speaker 1>is avoiding law enforcement too, but that the Apple still

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<v Speaker 1>allows that into the app store, So that that was

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<v Speaker 1>a major question, well was Apple's reasoning. So Tim Cook

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<v Speaker 1>actually sent an email to Apple's staff about it, and yeah,

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<v Speaker 1>his reasons we're pretty concerning. Really where where basically Apple

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<v Speaker 1>took the side of the Hong Kong authorities and they

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<v Speaker 1>were saying that the they had credible evidence from the

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<v Speaker 1>Hong Kong authorities that the app was being used, um

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<v Speaker 1>for malicious purposes to target Hong Kong police, and really

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<v Speaker 1>that that went down very very poorly because they really

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<v Speaker 1>didn't provide any evidence for that. Um. He also said

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<v Speaker 1>that the app was being used to break laws, but

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<v Speaker 1>they didn't really say what laws were being broken. And

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<v Speaker 1>no one, no one that I've read, has actually managed

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<v Speaker 1>to find a law that has been broken. Michaels of that,

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<v Speaker 1>We'll be right back saally before the break. You walked

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<v Speaker 1>us through this debacle surrounding the app h k app.

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<v Speaker 1>But it hasn't been the only way that Apple seems

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<v Speaker 1>to be appeasing the Chinese government censors recently, so late lately,

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<v Speaker 1>Apple pulled the Taiwanese flag emoji from the latest version

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<v Speaker 1>of the iPhone software that came out. Basically, if you

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<v Speaker 1>were in Hong Kong or Macau, it's very hard for

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<v Speaker 1>you to send a Taiwanese flag EMODI to someone else

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<v Speaker 1>in mainland China. That was already the case that you

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<v Speaker 1>could you couldn't send it um, so that that caused

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<v Speaker 1>some people concerned, probably not as big as the Hong

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<v Speaker 1>Kong map issue, but another another good example. And then

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<v Speaker 1>back in two thousand seventeen, a really really big one

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<v Speaker 1>was the Apple removed VPN apps from the app store

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<v Speaker 1>all of them, and there were lots and lots of

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<v Speaker 1>those apps, and that was a really very common way

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<v Speaker 1>for people in China to get around the Great firewalls.

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<v Speaker 1>So if you wanted to check what was on Twitter,

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<v Speaker 1>you fired up one of these VPN apps and it

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<v Speaker 1>spoofed your location and it gave you access to Twitter

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<v Speaker 1>and even Facebook to some degree. So China really really

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<v Speaker 1>cracked down on that and Apple basically got rid of

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<v Speaker 1>them all from the app store. That was that was

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<v Speaker 1>a real major one. And then the one that I

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<v Speaker 1>think is super super interesting. We didn't report it unfortunately,

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<v Speaker 1>that BuzzFeed did and over the weekend. So Apple has

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<v Speaker 1>a new TV streaming service that's a bit like Netflix.

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<v Speaker 1>I've seen the commercials for it. Yeah, it's all over

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<v Speaker 1>the place. Yeah, so they're really pushing that hard. About

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<v Speaker 1>a year or so ago, when Apple was wooing the

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<v Speaker 1>creators and of these TV shows that they're going to

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<v Speaker 1>stream online, they basically asked some of these creators not

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<v Speaker 1>to portray China in a in a poor light. And

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<v Speaker 1>Eddie Q, who's kind of the number three guy Apple,

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<v Speaker 1>was the one delivering that message. So that one especially

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<v Speaker 1>is particularly disconcerting. I think It happens kind of a

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<v Speaker 1>lot in Hollywood, where China provides a lot of financing

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<v Speaker 1>to movie studios, so they have to be super careful.

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<v Speaker 1>But Apple likes to think of itself as being different.

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<v Speaker 1>It stands up for ideals and freedom of speech and

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<v Speaker 1>privacy and things like that. And you know, in China

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<v Speaker 1>right now, this this this episode shows that it is

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<v Speaker 1>probably not happening. And of course this isn't just about

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<v Speaker 1>the tech companies, and it's also not just about Apple.

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<v Speaker 1>It's also about the NBA. The NBA example is super,

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<v Speaker 1>super interesting. So the general managers the Houston Rockets tweeted

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<v Speaker 1>support for the Hong Kong protesters, and there was a

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<v Speaker 1>swift response from the Chinese government after that. The Chinese

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<v Speaker 1>National TV broadcaster basically halted broadcasting any of the NBA games.

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<v Speaker 1>And the market there is huge for the NBA, about

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<v Speaker 1>half a billion viewers, and that's a lot of merchandizing,

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<v Speaker 1>that's a lot a lot of advertising, and you know,

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<v Speaker 1>all that stopped very very quickly after that tweet. I

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<v Speaker 1>guess these Western companies that want to sell to China

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<v Speaker 1>do have to play this very delicate dance that gets

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<v Speaker 1>them into these controversies increasingly more so probably, I guess

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<v Speaker 1>one argument is to say, and certainly this is what

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<v Speaker 1>free speech activists would say, it's just not worth it

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<v Speaker 1>to sell your soul to China. But if iPhones were

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<v Speaker 1>to get banned from China, that would be catastrophic for

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<v Speaker 1>Apple's business. Yeah, it would be huge. The revenue that

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<v Speaker 1>Apple gets from Greater China, which is China, Hong Kong, Taiwan,

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<v Speaker 1>is over fifty billion dollars a year, and that the

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<v Speaker 1>market there is super super valuable. But it's also very fickle.

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<v Speaker 1>So when when the Chinese government is unhappy with Apple,

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<v Speaker 1>bad things happen, probably indirectly. A really good example of

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<v Speaker 1>that is with Huawei, which is China's national champion when

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<v Speaker 1>it comes to tech companies. And so the US really

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<v Speaker 1>cracked down on Huawei roughly about a year ago, something

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<v Speaker 1>about a year ago. Soon after that, in the in

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<v Speaker 1>the next quarter, Apple's iPhone sales in China they didn't

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<v Speaker 1>do very well, and Huawei's sales rose quite a bit.

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<v Speaker 1>And and so nothing over was ever said by the

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<v Speaker 1>Chinese government and anything like that. But the theory is

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<v Speaker 1>that basically, either there was a national outpouring of support

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<v Speaker 1>for for Huawei, or the Chinese government was sending a

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<v Speaker 1>subtle message to everyone, do not buy iPhones by Huawei phones.

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<v Speaker 1>So there's a real there's a real impact if Apple

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<v Speaker 1>has to keep the Chinese government happy, because that was

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<v Speaker 1>a little taste of what could happen if things continue

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<v Speaker 1>to go bad, right, I wonder if Apple has a

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<v Speaker 1>little more leverage then it thinks though, because it's such

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<v Speaker 1>a big employer in China. Yeah, that's that is a

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<v Speaker 1>really really good point. Almost all iPhones were assembled in China.

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<v Speaker 1>At least a million people are hired to do that,

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<v Speaker 1>and so if Apple suddenly couldn't sell hundreds of millions

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<v Speaker 1>of phones in China, then then some of those people

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<v Speaker 1>would lose their job or because of the trade war

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<v Speaker 1>and and tariffs and things like that, if Apple decided, oh,

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<v Speaker 1>why we're gonna make We're going to make all iPhones

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<v Speaker 1>in Vietnam and India, that would be really devastating to

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<v Speaker 1>the Chinese economy. And then then in the Chinese government

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<v Speaker 1>would not want that to happen at all. So there

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<v Speaker 1>is certainly a two way street going there. So if

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<v Speaker 1>Facebook and Google and all these other Internet giants that

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<v Speaker 1>have been trying and failing to get into China. What

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<v Speaker 1>do you think their executives are thinking now as they're

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<v Speaker 1>watching this unfold? Maybe relief. So even just a year

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<v Speaker 1>ago they were desperate to get into China, now it

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<v Speaker 1>looks like it would be a huge headache for Google

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<v Speaker 1>and Facebook if they were in China and they would

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<v Speaker 1>be there making the same terribly difficult decisions that Apple

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<v Speaker 1>is making right now, and especially for someone like Google

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<v Speaker 1>with the famous motto do know evil? You know, if

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<v Speaker 1>they were in China right now and they were they

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<v Speaker 1>were serving sensored search results in an environment like this,

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<v Speaker 1>that would be extremely hard to support. And I think

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<v Speaker 1>they would get a big backlash from customers but also

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<v Speaker 1>from from their employees very much. So, if you believe

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<v Speaker 1>in the ideal of freedom of information, do you think

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<v Speaker 1>it's even possible for American companies to act ethically in

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<v Speaker 1>China today? I think that's very, very different. Called So

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<v Speaker 1>when I think about Apple in China today, I go

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<v Speaker 1>back to the famous four ad that around you in

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<v Speaker 1>the Super Bowl for Apple Macintos computers, and back then,

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<v Speaker 1>the ad showed totalitarian dictator on a big screen saying

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<v Speaker 1>nasty things and everyone's standing there straight, I'm looking scared.

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<v Speaker 1>We are wanted resolved. And then a woman appears and

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<v Speaker 1>smashes the screen. And the whole message was that Apple

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<v Speaker 1>was going to fight totalitarian um and you'll see why

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<v Speaker 1>four will be like four. And now fast forward many

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<v Speaker 1>many years later, Apple is in China, is having to

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<v Speaker 1>deal with this government and and really it can be

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<v Speaker 1>seen to be being forced to enable a form of totalitarians.

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<v Speaker 1>Alista Bart, thanks for coming on the show today, my pleasure,

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<v Speaker 1>Thank you for having me. This episode of Decrypted was

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<v Speaker 1>produced by me Ao, Sean Wyne and Too for Foreheads.

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<v Speaker 1>Our story editor is in vander May. Francesco Leavie is

0:14:14.960 --> 0:14:17.640
<v Speaker 1>the head of Bloomberg Podcasts. We'll see you next week.