In a US technology first, Apple Inc. (NASDAQ:AAPL) is housing data servers on Chinese soil to store personal data of Chinese users, potentially out of the reach of US legal jurisdiction.

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Apple would store date on China Telecom’s server

The storage would include data gathered from cell phone usage, a key source of US National Security Agency spying.  Instead of storing data in the US, Apple Inc. (NASDAQ:AAPL) would store user data on servers provided by China Telecom Corporation Limited (ADR) (NYSE:CHA) (HKG:0728), China’s largest wireless carrier, according to a statement from Apple.

Although a report said Apple attributed the move to an effort to “improve speed and reliability of its iCloud service,” it is well known, as previously reported in ValueWalk, that NSA spying is a significant issue being considered worldwide and impacting the bottom lines of many tech giants.

“Apple takes user security and privacy very seriously,” the Cupertino, California-based company said in a statement.

A concern that led Google to previously avoid placing servers in China was government censorship and privacy concerns in a country with a history for such violations.

Chinese government might get a hold of your conversations

Citing unnamed sources, the report attempts to allay fears the Chinese government would get their hands on sensitive and private cell phone conversations and data usage patterns.  Apple is reported to keep the encryption keys that keep data private at an offshore location so the Chinese government cannot access the data.  The ability to track each cell phone user’s location, learn their usage patterns and monitor their communications, in the wrong hands, could be used to control and suppress a population to an historic degree.

Nonetheless, Apple Inc. (NASDAQ:AAPL) kept up the “improvement of service” cover story.

“We have added China Telecom to our list of data center providers to increase bandwidth and improve performance for our customers in mainland China. All data stored with our providers is encrypted. China Telecom does not have access to the content.”

While this statement appears as gloss for the weak minded who can’t see through the spin, Apple did give red meat to those who look beneath the surface by addressing the unasked question about encryption security.

Apple has developed encryption systems

Apple Inc. (NASDAQ:AAPL) claims to have developed encryption systems for services so secure, even Apple itself can’t unlock the code.

Encryption services work by taking digital data – an e-mail, phone conversation or document – and then break the data down into an apparently unreadable code.  This code can only be unlocked by an encryption key.

Some experts expressed skepticism that Apple Inc. (NASDAQ:AAPL) would be able to withhold user data in the event of a government request. “If they’re making out that the data is protected and secure that’s a little disingenuous because if they want to operate a business here, that’d have to comply with demands from the authorities,” Jeremy Goldkorn, director of Danwei.com, a research firm focused on Chinese media, Internet and consumers, was quoted as saying.