App Store in China may face more regulation due to Apple's weaker position

Apple has been careful to keep itself amenable to the government and regulators of China, due to the country playing a major role in its revenues and in hardware production. With the bulk of its supply chain in its borders, as well as generating a large proportion of revenue, Apple is keen to keep the relationship cordial.

The size and power of the company meant it had a lot more sway than other multinationals, and to allow it to skirt some of China's laws. But that had its limits. According to sources of The Information, a 2017 meeting with regulators went sour despite Apple's overtures.

That year, Apple announced a trio of research and development centers in the country, as well as handing over control of Chinese iCloud data to a local company it partnered with. However, in a meeting with regulators, a source claims the just-appointed head of Greater China Isabel Ge Mahe was told Apple wasn't as untouchable as it thought, and that it should comply with all Chinese laws.

While previously Apple was able to secure exemptions that allowed it to operate in China, such as operating the App Store without a local partner or the loose censorship applied to apps and content, Apple instead had to be more compliant and follow the same rules as everyone else.

These compliance measures included the recent pulling of thousands of games from the App Store in China that, in turn, failed to acquire licenses from regulators, and it is claimed Apple has also given up on launching Apple TV in the country. A bigger concern for sources allegedly close to the company are issues involving other key exemptions, such as those allowing the App Store to operate at all.

Arguably the biggest exception is the one where app stores are meant to be majority-owned and operated by a Chinese partner, something Apple hasn't done since the App Store opened in the country in 2010. Furthermore, while app stores are meant to ensure apps follow laws, including those heavily censoring content and services, Apple operates with a considerably more relaxed attitude.

It turns out that Apple did have the opportunity to work around this problem as early as 2013, when China launched the Shanghai Free Trade Zone to encourage foreign investment. Sources claim Apple executives thought about setting up a legal entity in the zone to maintain the store without needing a joint venture partner, but it was dismissed as a potential loss of control.

Apple waited until 2018, during the US-China trade war, to register the entity, however, the Chinese government has declined to approve the application. People familiar with proceedings say Chinese officials want more concessions from Apple concerning what happens with the App Store, something Apple executives are resisting.

With the current situation regarding the Trump Administration and demands for the sale of TikTok's US operations to get it out of Chinese hands, this puts the App Store in a precarious situation, with China potentially able to make more demands from Apple in retaliation.

Former Apple employees told the report the games crackdown may just be the start of China's power grab on the App Store, and that its efforts to make the App Store fully compliant with Chinese law will ramp up in due course.