I would much prefer that the license and information from apple explicitly stated that this chinese firm will only be able store and access data from chinese accounts and there is a very secure barrier between the two. However, given this paragraph

They include a clause that both Apple and the Chinese firm will have access to all data stored on iCloud.

It makes me really worried about apples commitment to privacy.

I'd prefer that China allow its citizens to freely access the global internet.

I was going to comment that I think the question referred to what course of action /Apple/ should take, but maybe fundamentally changing superstates is not off the table when you have multinational megacorp resources.

What are you suggesting? Revolution?

And how could Apple accomplish that?

By threatening to pull manufacturing.

China adds so little value there I don’t think it would cause a blip. Then Apple would have decide somewhere else to do that with the right supply chain in place.

I think(I hope) as more people in China come online they will realize that they are missing out.

Sadly the opposite might occur. Fake news is very useful. For corporations, it acts like PR/marketing channel. For nation-states it's a great propaganda channel.

What if the Communist Party of China was actually visionaries what the Internet could do for oppressive nation-states, if properly harnessed for the good of the party?

This was the hope with the internet here in the US. Hundreds of millions of users later, the average person seems even less informed on the world around them. Access is meaningless if good information is less appealing or is made to seem less credible than propaganda.

How about a notice on iCloud reading something like "iCloud is not available in your country due to local government regulations that are in conflict with our position on personal privacy. We are sorry for the inconvenience."

Given China's history I would expect them to be very, very upset by this public criticism of their government. Especially on every iPhone.

Google did that (actually took an even stronger stance). But if competitors don't do the same, then nothing changes and you are just ceding the market to them.

To be clear, I am not advocating that companies should bow down on their principles, just that it needs to be a more coordinated effort across companies, and might need new technical solutions to evade government firewalls etc.

While I am cynical that my wishes would come true, I do respect the companies that take a moral stance against their own business interests, which includes Google in China and Apple in the US.