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Sorry Apple gets respect in China after tabloid trial

By Melanie Lee

SHANGHAI (Reuters) - With its rare apology, Apple Inc went from pariah to praiseworthy in the eyes of China's state-controlled media, a lesson for other foreign firms not to underestimate the speed and power of the government press.

After coming under near-daily media assault for the past two weeks and facing the threat of penalties from two Chinese government bureaus, Apple apologized to Chinese consumers on Monday for poor communication over its warranty policy and said it will change the terms for some of its iPhones sold in China.

Greater China is Apple's second-biggest and fastest-growing market, with sales up almost 40 percent to $6.8 billion in the final quarter of 2012.

The Chinese newspapers that threw brickbats at Apple a few days ago have since changed their tune.

"The company's apology letter has eased the situation, softening the tense relationship between Apple and the Chinese market ... Its reaction is worth respect compared with other American companies," wrote popular tabloid the Global Times, published by Communist Party mouthpiece the People's Daily.

The Foreign Ministry praised Apple for "conscientiously" responding to consumers' demands.

"We approve of what Apple said," spokesman Hong Lei told a daily news briefing on Tuesday.

Only last week, the People's Daily issued a scathing editorial on Apple's return policy saying the popular smartphone maker was filled with "unparalleled arrogance".

Apple was first targeted in mid-March by state broadcaster CCTV during its annual consumer day segment. Volkswagen AG, which was also criticized on the same show, plans to recall vehicles to fix a gearbox problem.

"That Timothy Cook had to step up and respond from the CEO's chair shows the importance of China and how critical it is as a market not just for Apple but for every multinational company here," said Kent Kedl, Shanghai-based head of Greater China and North Asia for risk consultancy firm Control Risks.

Foreign companies who are adept at managing media crises at home find it much tougher to navigate China where state media outlets, pandering to different audiences, often have opaque agendas and intentions. Analysts also said that foreign companies need to remember that the bigger the brand, the bigger a target it will be, especially in China.

"What foreign companies need to pay attention to, is that nobody operates in a vacuum, nobody operates only on the good graces of a brand name ... Five to ten years ago a report on CCTV would have rippled a little bit, now it goes viral and has a life of its own," Kedl said.

NOT APPLE'S FIGHT TO WIN

Apple's acquiescence in this setting, where the world's largest technology company by market value was ironically the David going up against China's Goliath state media machinations, shows its wisdom in not challenging a more powerful enemy.

Although popular opinion on the Internet swayed in Apple's favor, against state media and the reported threats of penalties from China's State Administration for Industry and Commerce as well as its quality and inspection bureau, it was not Apple's fight to win, experts said.

Other foreign companies targeted by CCTV, such as fast food chain operator Yum Brands Inc, have also apologized and faced scrutiny from government agencies. Last December CCTV reported that two of Yum's suppliers purchased chickens from farmers who used excessive levels of antibiotics in their animals. The report and subsequent investigations hurt sales at Yum's KFC chain.

But Apple's situation is somewhat different because CCTV's claim was not completely new. Last July, a Chinese consumer rights group also slammed Apple for its after-sales policies. That time, however, Apple held its ground.

With the apology and warranty change, Apple's mea culpa is significant not just because it comes from a tech firm that rarely apologizes, but also because Apple may be realizing that in China, it needs to be proactive.

"They're out of the woods and into the weeds. Things will rarely be smooth for Apple in China - even if consumers love it there will always be factions in and out of government that are trying to take it down," said Michael Clendenin, managing director of technology consultancy RedTech Advisors.

"Apple made it easy this time, but they have learned to be more proactive. The next time they stumble, it will be easier to recover," he said.

(Additional reporting by Ben Blanchard in BEIJING; Editing by Emily Kaiser)

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