Apple to Build China Data Center to Meet New Cybersecurity Law -- 2nd Update

To comply with tough new cybersecurity rules, Apple Inc. will begin storing all cloud data for its China customers with a government-owned company -- a move that means relinquishing some control over its Chinese data.

Apple will build its first Chinese data center in the southern province of Guizhou to house data for customers of its iCloud service. The data include photos, documents, messages, apps and videos uploaded by Apple users throughout the mainland, the company said Wednesday.

The center will be operated by a company owned by the Guizhou provincial government, and whose chairman was a local government official until last year.

Under the agreement, Apple will retain control over encryption keys at the data center. It wasn't clear if it would have access to any of the data itself, which would be overseen by its Guizhou partner.

In addition, Apple wouldn't be able to transfer data from Chinese customers to the U.S., in compliance with China's new cross-border data guidelines that were also part of the latest cybersecurity rules.

The announcement significantly expands a concession Apple made to appease Chinese authorities in 2014, when it started storing some data at facilities owned by state-owned China Telecom to dispel security concerns. At the time, Apple said the move would improve performance for Chinese customers.

Apple didn't clarify which data was being stored under that previous agreement, but under the new arrangement all of the iCloud data for its customers in China will be stored in the country. Currently, Apple pulls some iCloud data for Chinese users from servers in the U.S.

Apple said it made the latest change to comply with China's new rules on data storage and cloud-services operation that went into effect June 1 as part of sweeping new regulations aimed at improving cybersecurity. It also said the new data center would improve speed and reliability for customers in China.

The Silicon Valley company has been one of the technology industry's strongest advocates for fending off government incursions into user data. In a statement, Apple said it has "strong data privacy and security protections in place and no backdoors will be created into any of our systems."

The latest move comes as Apple has been facing increasing regulatory headwinds in China. Last year, for example, its online book and movie services was shut down by authorities, who didn't give specific reasons for the closing.

China also has ramped up pressure broadly on foreign cloud-service providers over the past year to comply with longstanding rules that require them to partner with local firms. Microsoft Corp. and Amazon.com Inc. already have local partners.

"It's clear that this is now being enforced across the board," said Chris DeAngelis, Beijing-based general manager of consultancy Alliance Development Group. "Any cloud-based company coming into China has to have a local operating partner."

U.S. lawmakers sent a letter to China's ambassador in March, protesting the growing restrictions on foreign cloud-service providers.

Under the arrangement announced Wednesday, Apple's China users will transition to a cloud-storage service that will carry the brands of both Apple and its Chinese partner, whose full name is Guizhou on the Cloud Big Data Industry Development Co.

It is the first time iCloud has been co-branded. The transition will occur over the next several years while the $1 billion data project is developed.

Apple has said its encryption can't be cracked, not even by Apple itself, making the company one of the strongest defenders of user privacy among major U.S. tech companies. Apple famously refused the FBI's demand that it unlock an iPhone owned by a gunman in the 2015 mass shooting in San Bernardino.

Governments world-wide regularly ask Apple for user data, which the company documents and publishes in an annual transparency report. In China last year, Apple said it had requests for more than 6,500 accounts and provided some data for 99% of those accounts. In the U.S., it had requests for roughly 13,000 accounts and provided data for about 80% of the accounts.

Guizhou is one of China's poorest provinces, and Beijing has pushed economic development there to create more job opportunities. Chinese President Xi Jinping plans to participate in the Communist Party's leadership conclave this fall as a Guizhou delegate, despite having few ties to the province.

With Beijing's backing, Guizhou is seeking to build a big-data industry, and has attracted investments from other major tech companies including Qualcomm Inc. and Foxconn Technology Group.

In a description of Guizhou on the Cloud, chairman Fu Yu wrote that the company aims to "provide a platform for aggregation and sharing of government data."

Mr. Fu, the former government official, couldn't be reached for comment. An employee who answered the phone at the company said Apple was its first international partner, but they hoped for more.

Tripp Mickle in San Francisco contributed to this article.

Write to Alyssa Abkowitz at alyssa.abkowitz@wsj.com and Eva Dou at eva.dou@wsj.com

(END) Dow Jones Newswires

July 12, 2017 19:07 ET (23:07 GMT)