Exclusion of Apple Intelligence from China market may weigh on iPhone sales, say analysts

The exclusion of the much-anticipated Apple Intelligence suite from China's market could weigh on iPhone sales in the country, analysts said, especially after the US tech giant dropped out of the mainland's top-five smartphone brand list in the second quarter.

Following the debut of Apple Intelligence's beta version on its newly released iOS 18.1, Chinese users expressed disappointment that the highly anticipated suite of artificial intelligence (AI) features is not yet available in their market. The beta version is limited to American users as it requires them to set the language of the device and voice assistant Siri to US English, and the device region to the US, which excludes China and the EU.

Netizens on Chinese social media platform Weibo are taking a wait-and-see approach, with many searching for ways to bypass Apple's restrictions. One Chinese user on X, formerly Twitter, wrote on Tuesday that it won't be necessary to have the "fear of missing out" as everyone "inside the Great Firewall ... is subject to this kind of experience downgrade".

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A pedestrian holds an iPhone in front of an Apple store in San Francisco, California, June 11, 2024. Photo: Bloomberg alt=A pedestrian holds an iPhone in front of an Apple store in San Francisco, California, June 11, 2024. Photo: Bloomberg>

Apple did not immediately respond to a request for comment on Wednesday about its plans to launch Apple Intelligence in China.

Uncertainties are looming around how and when Apple can bring its AI features to China, as the California-based tech giant will need to tackle major challenges including Beijing's stringent regulations on large language models (LLMs) and data handling in the country.

Fulfilling its AI promises has become more pressing as Apple is losing ground in the world's biggest smartphone market. In the second quarter, Apple fell out of the top 5 rankings of smartphone vendors in China, according to data by Canalys, marking the first time in years that the iPhone maker has been out of the top 5 in one of its most important markets.

"Apple is facing a bottleneck in mainland China," Canalys analyst Lucas Zhong wrote in a report last week. "The localisation of Apple's Intelligence services in mainland China will be crucial in the next 12 months."

Apple adopts a hybrid approach in its AI strategy, with a focus on privacy, promising to handle most of the AI computing on the device, and use its Private Cloud Compute system to handle more complex AI problems.

"For the on-device LLM developed in-house, compliance is the main challenge, with localisation being a secondary concern," said Zhong. "While the issue of localisation can be resolved through model tuning, the compliance process will take time."

In China, the race to integrate generative AI features into smartphones has already escalated as major Chinese vendors, from Beijing-based Xiaomi to Guangdong-based Vivo, Oppo and Huawei Technologies, have been integrating a variety of AI-powered functions to their devices to help users write text messages, edit photos, answer calls and take notes.

While Apple has partnered with Microsoft-backed OpenAI in integrating generative AI in Siri and other tools in its devices outside China, the company has yet to announce a local partner in the Chinese market where ChatGPT is not available.

"The potential roll-out of Apple Intelligence in China depends on its negotiations with the Chinese government," said Arthur Guo, a senior analyst with IDC China. "We believe that the key difference between the China roll-out and the global version would be in its cloud-based intelligence."

Apple's South Korean rival Samsung Electronics, which formed a partnership with Google worldwide, also struck a deal with Baidu to provide AI capabilities for its Galaxy S24 phones in China. The Beijing-based internet search giant is also said to be in talks with Apple about a similar partnership.

A sign for 'Galaxy AI' artificial intelligence seen at the Samsung Electronics Unpacked launch in Paris, France, on July 10, 2024. Photo: Bloomberg alt=A sign for 'Galaxy AI' artificial intelligence seen at the Samsung Electronics Unpacked launch in Paris, France, on July 10, 2024. Photo: Bloomberg>

Apple is no stranger to the need for a unique iPhone ecosystem to comply with the heavily regulated Chinese market. For example, it has ceded legal ownership of its customers' data to Guizhou-Cloud Big Data, a company owned by the provincial government. Censorship rules in China also block user access to some of the world's biggest apps and services including Instagram, Google search and X in the local app store.

Canalys' Zhong expects relatively low regulatory resistance for Apple Intelligence in China due to the company's emphasis on compliance during the model training process and its relatively transparent privacy policy.

"We can expect the launch of Apple Intelligence in China to boost the demand for iPhone upgrades, but the key challenge for Apple is to revitalise Chinese consumers' interest with innovative updates in the features," Zhong said.

Shenzhen resident Thomas Chen said he would stick with iPhones even without Apple Intelligence, as he has been in the Apple ecosystem for years. "Currently AI has yet to enter a very intelligent stage, and it's not essential for me to have it on my phone. There are many alternative ways to access AI services that I need," he said.

China's scrutiny over generative AI technology has been tightening, with new guidelines and rules this year to ensure that AI-generated content aligns with what the government permits. Last August, China imposed detailed regulations governing domestic generative AI services, making it one of the first countries in the world to implement rules covering that emerging technology.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2024 South China Morning Post Publishers Ltd. All rights reserved.

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