china-flag-apple-logo1.jpgCNBC ran a widely reported audio interview on its Power Lunch program with Carl Icahn in which the billionaire activist investor shared the news that: “We no longer have a position in Apple.” And Icahn attributed this decision primarily to Apple’s exposure to China – which recently shut down the iBooks Store and iTunes in the PRC after just a few months of operation. The news caused a sharp drop in Apple’s share price, compounding earlier losses following its latest quarterly results.

“You worry a little bit – and maybe more than a little – about China’s attitude,” Icahn said, adding that China’s government could “come in and make it very difficult for Apple to sell there.” In this context, a report by the state-run news service Xinhua on a symposium on cybersecurity and the information economy soon after the shutdown, quoting President Xi Jinping of China, sheds an interesting light.

The report states: “A clean and healthy cyber space is in the interests of the people, while a foul and unhealthy one serves no one, said Xi. It follows that China must improve management of cyberspace and work to ensure high quality content, he said, with positive voices creating a healthy, positive culture that is a force for good. The president suggested that the cyberspace be imbued with positive energy and mainstream values, in the hope of creating a clean and righteous environment.”

Obviously the iBooks Store just wasn’t clean and righteous enough. While full of praise for Tim Cook’s work at Apple, and the money he had made while in the company, Icahn added that he would only go back in if China “was basically steadied.”

What does this mean for iBooks, Apple and ebooks in general? Well, for one thing, China is now toxic: If even the world’s second most valuable company can take such a hit from exposure to China, why would any other media or tech MNC take a chance on it? Of course, many foolish and greedy optimists will still try, but can they expect much better? iBooks will soldier on elsewhere, but no one had better hold their breath waiting for a revival of its fortunes in China to give it a boost.

Apple might take comfort from the fact that China’s growth is slowing anyway and the market may no longer be such a prize. President Xi, while alluding to the opportunity for China to build its own tech titans, couldn’t help alluding to China’s “new normal.” That is, a new era of slowing growth that puts the PRC behind Bangladesh in GDP pickup. And that makes a Chinese Communist Party that for decades has relied on economic growth for legitimacy increasingly nervous, unpredictable and censorious. China may succeed in building its own ebook giants: Outside players who jump in to that market now are in all too much danger of following Apple in a great leap backwards.


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