According to Apple, this was the best balance. The company fought to keep iCloud data in the US, but was "ultimately unsuccessful," it said in a statement. This at least ensures that they have a good user experience, and might actually be more secure than steering users to alternatives.
Apple said it still has control over the encryption keys and isn't giving China special access. However, that doesn't allay concerns that China will now have greater power to spy on iPhone-toting residents. Police in the country can both issue and execute warrants without the oversight of a court, and iCloud accounts aren't as secure as iPhones and iPads -- it is possible to access the information contained in an iCloud account if Apple gets a legal order.
And that, in turn, has human rights advocates worried. China is notorious for demanding to surveil as much domestic internet traffic as possible in order to target dissidents, and having local access through a state-owned company could make that considerably easier. Apple might be making the best decision it can short of exiting the Chinese market entirely, but that could still lead to problems for activists and others who want to maintain as much privacy as possible.
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