Apple's brand won't be sullied until they give-in to a government order to flag other types of illegal images (gay porn in Saudi Arabia, say, or pictures of the Tank Man in China) and are caught doing it.
Apple's rejoinder is that they will simply refuse to do that. And that's great, until you consider that all the iPhones are made in China and China is more than willing to apply immense pressure including but not limited to shutting down Foxconn if they feel strongly about it.
Most of the major tech co's have already adapted to China's requests.
That in general means hosting data about chinese nationals in china, usually using state govt controlled datacenters, and making sure the keys to decrypt content are also local and accessible to those state controlled employees.
You should have little to no privacy expectation in china as an example.
For example AWS is careful to use this language about it's china regions: "Amazon Web Services China (Ningxia) Region operated by NWCD"
They used to block KMS services in China as well.
Apple has said it will (generally) follow the law in the countries it operates in. Until we say apple can make its own laws that is probably what it'll have to do.
Apple's rejoinder is that they will simply refuse to do that. And that's great, until you consider that all the iPhones are made in China and China is more than willing to apply immense pressure including but not limited to shutting down Foxconn if they feel strongly about it.