Internet & Tech, Talking Point

Time to buy a second home?

Why the bosses of Apple and Facebook are such frequent visitors to Beijing

Apple CEO Tim Cook waves as he attends a talk at Tsinghua University in Beijing

“Me again”: Apple boss Cook said the company plans a major China expansion

In Walter Isaacson’s 656-page biography of Steve Jobs, China is mentioned just once by the Apple founder. And it was from a long time ago. In 1985 the company was granted the right to sell computers to China. To commemorate the moment, Jobs was invited to a ceremony in Beijing’s Great Hall of the People. Rather than go himself, he suggested sending his great rival, John Sculley.

“I’m going to launch a coup while John is in China,” Jobs confided to a fellow executive. But word got back to Sculley, who was warned that “Steve’s plotting to get rid of you”. Sculley, then the CEO, cancelled the Beijing trip, and in the dramatic days that followed it was Jobs who was kicked out of the company.

So if China had a special place in Jobs’ psyche, perhaps it was in the darker recesses where he perhaps associated it with losing the firm that he loved and being cast out into the corporate wilderness. Maybe that’s why he could never bring himself to visit the country too.

His successor Tim Cook is a different proposition entirely, having already travelled there five times since taking the helm at Apple. Indeed, when Cook is introduced in Isaacson’s book, the man Jobs hired from Compaq is immediately talking about China. Just two paragraphs after his first mention, Cook is at a meeting about one of Apple’s Chinese suppliers. “This is really bad,” he says. “Someone should be in China driving this.” Thirty minutes later Cook stares at an operations executive still sitting at the meeting table. “Why are you still here?” he asks, prompting the individual to head straight to the airport. The incident speaks volumes about Cook’s priorities, and where China has ranked from virtually his first day at the Cupertino-based firm.

Last week Cook was in China once more, dealing personally with fresh challenges that Apple is facing in the country. But he wasn’t the only American tech titan in Beijing. In a reflection of how the giants of Silicon Valley are turning their charm offensives towards the Chinese market, Facebook’s founder and boss Mark Zuckerberg was already in town when Cook touched down in the capital.

And if anything, the younger man managed to upstage Cook in charming the Chinese.

How so?

At an event at Tsinghua University, Zuckerberg said: “I love Chinese culture very much. China is a great country.”

Not especially remarkable, you might think, as international business bosses are often keen to express their admiration in equally glowing terms for this increasingly important market.

But what stood out about these platitudes was that they were delivered in Chinese. Indeed, Zuckerberg spoke in Mandarin for the entire 30-minute Tsinghua session. Although the questions were scripted, the move still stunned his audience, impressing the local and international media.

Zuckerberg was known to be studying Mandarin, as he’d mentioned that he was learning the notoriously tough language in order to communicate better with his wife’s in-laws (Priscilla Chan’s grandmother speaks no English). During the Q&A at Tsinghua, he acknowledged that it was a hard task but that “he liked challenges”. Generally he did well at the event, excluding a few linguistic slip ups, like saying that Facebook boasts eleven mobile users instead of 1 billion.

Perhaps playing to his undergraduate audience, the billionaire also said his favourite Chinese foods were the inexpensive Beijing hutong snacks sold by street vendors. He mentioned his travels around the country (he’s been there four times) and expressed his admiration for the early twentieth century martial artist Huo Yuanjia (who is famed among Chinese for vanquishing ‘arrogant’ foreign pugilists).

So what was the reaction to this unanticipated verbal feat? The Associated Press noted that “Zuckerberg’s Chinese pronunciation was far from fluent. Some native speakers called it a ‘challenge’ to understand. But he was able to maintain intelligible conversation for half and hour and the students responded with warm cheers for his efforts and laughter at his humour.”

As an exercise in wooing public opinion, it was pretty smart. Many Chinese are impressed and touched when foreigners try to engage in their language. That goes double when it is someone as prominent and influential as Zuckerberg. Making the effort to speak Mandarin also indicates the speaker is someone who wants to treat China as an equal. The Chinese are fairly sensitive on this front. For example, schoolbooks still dwell on the hundred years after the Opium Wars as if it were ‘recent’ history – treating it as a scar that still needs redress. During that Century of Humiliations China was weak and its global standing low. Today’s national rhetoric declares stridently that China will never be treated as inferior again. (Indeed, you can only really grasp President Xi Jinping’s sloganeering about the Chinese Dream and his call for national rejuvenation in this context.)

So if you tell China it’s great – and in Chinese – it’s likely to produce nods of approval – especially so when an American business icon is doing the telling. At the opposite extreme from humiliation, the Chinese were deeply flattered last week by the efforts of Facebook’s founder.

So a positive reaction?

In the main, with former Google China boss and prominent blogger Lee Kai-fu also impressed that Zuckerberg had heard of Huo Yuanjia. “His progress in Chinese learning is so fast!” Lee commended.

Other netizens praised Zuckerberg as “China’s good son-in-law”.

One even wrote: “I want to cry out of happiness.”

Of course, not all the comments were quite so positive (one said Zuckerberg’s pronunciation made him want to laugh; another that subtitles were required) and there was occasional wit, too. “Who is this man? We have never heard of this Facebook,” was one contribution, in reference to the fact that China is one of the few places where Facebook is unavailable. Notably, few netizens felt that Zuckerberg’s Chinese speech would change this state of affairs too.

But Doug Young, who writes a China business blog, speculates that Facebook could make its debut inside China via a partnership with Tsinghua – noting that the university already has a number of successful tech ventures. Young reckons that Zuckerberg’s latest trip only underscores his determination to get into China within the next two years and one questioner at the Tsinghua gathering did ask about Facebook’s strategy for launching there. But Zuckerberg dodged the question, saying: “We are already in China. We are helping Chinese companies to increase their overseas clients via advertisements on Facebook. We want to help other places in the world connect to China.”

On a different note Zuckerberg told Tsinghua’s students of his admiration for local tech firms, among them Tencent and its WeChat service. Indeed, with Facebook shut out of the Chinese market for so long, homegrown social media networks have already built up huge scale and user loyalty. This suggests to WiC that Zuckerberg knows that ­– even if Facebook were to become more easily available – it is by no means certain it could rob WeChat and Weibo of their dominant positions.

And why was Cook in Beijing?

Unlike Facebook, Apple already has a massive business in China (its third largest after the US and Europe). But it has faced a media backlash in the wake of Edward Snowden’s revelations about state-backed snooping. State broadcaster CCTV even claimed that location-tracking functionality on the iPhone is a “national security concern”. To soothe ruffled feathers Apple has started to keep the personal data of some Chinese users on servers in mainland China, says Reuters, “marking the first time the tech giant is storing user data on Chinese soil”.

The size and growth of the Chinese smartphone market means Apple’s relationship with the authorities in Beijing is commercially crucial too. Accordingly, the main item on Cook’s itinerary last week was a meeting with Vice Premier Ma Kai, when he even exchanged his usual dress-down garb for a suit and tie. What was said is unknown, but Xinhua summarised the meeting as an exchange of views over how best to protect user data.

Whether Cook’s visit has lessened Chinese suspicions about US tech firms is unlikely. Perhaps it’s telling that CCTV kept up the heat on Apple last week, running a segment in which it derided the huge profits made on sales of the iPhone to Chinese consumers (it calculated that Apple enjoys a 70% margin, with the phones costing just Rmb1,227 to make).

Still, Cook was on-message with another local media source, Sina. Here he revealed that the company’s Beijing shops were “the world’s busiest retail stores”. Its four shops in the capital serve 250,000 customers a week, he said, and their success is prompting an expansion of Apple’s local retail effort. Cook pledged that store numbers in Greater China (which includes Hong Kong and Taiwan) would rise from 15 to 40 in the next two years.

He also told Sina the company would make other “unspecified” investments in China and predicted: “In the future, China will become Apple’s biggest revenue contributor. It’s just a matter of time.”

That’s pretty astounding when you consider Apple virtually ignored the China market for the first decade of this century.

Will Apple have it all its own way?

Readers may recall that WiC ran a short item a few weeks ago about how a Chinese business head had motivated his team to hit sales targets by offering them each an ‘Apple 6’ (as the latest iPhone is often referred to in China).

But after they had worked hard to make the sales, the boss handed out apples with a number 6 painted on them. The team was infuriated, but the anecdote does at least speak to the allure that Apple smartphones still have in China.

Despite this, it looks unlikely that Apple will take a dominant share of the Chinese smartphone market. In the second quarter it wasn’t even in the top five, with number one position finally grabbed by the local player Xiaomi (for our first mention of this firm – all the way back in August 2011 – see WiC119).

A Wall Street Journal headline this week confirmed the firm’s ascendancy: “Hottest smartphone in China: it’s not Apple, it’s not Samsung.” In fact, it’s Xiaomi.

The Chinese start-up seems to have exasperated a few people at Apple with its spectacular rise to the top, including the Californian firm’s design guru Jony Ive, who has said that it isn’t flattering when a firm like Xiaomi opts for aesthetically similar designs, but more akin to “theft”.

Xiaomi has grabbed a 14% market share in China partly through the look of its devices, but also through its lower prices (its smartphones cost about a third of the iPhone). It has also built up a loyal following by inviting Xiaomi owners to offer advice about improving the phone’s operating system. Each Friday it updates the OS based on feedback, creating a sense of community and generating creative ideas from its customers.

In contrast, Apple’s iOS has never been tailored to the Chinese market. But if China does become its biggest revenue source, might the firm have to take a leaf out Xiaomi’s book and make more of an effort to entertain the demands of local consumers?

In fact, Zuckerberg invited Xiaomi’s boss Lei Jun for dinner in Beijing last week, indicating that he thinks he could learn a thing or two from the local tycoon. (Cook, on the other hand, chewed the cud with Alibaba’s Jack Ma – the Chinese e-commerce tycoon later told the Wall Street Journal that some sort of “marriage” may occur incorporating Alipay and Apple Pay.)

One thing’s certain: as China’s tech sector continues to grow in strength, flights between San Francisco and Beijing look set to get fuller. Crawford Del Prete even sees the early signs of a shifting balance of power between the two strongholds. Chief researcher at research body IDC, Del Prete told Want China Times: “The scramble to visit China underscores the rush of those hi-tech heavyweights to express their goodwill towards the nation, an unlikely phenomenon during the era of Steve Jobs.”

© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.