Tim Cook, in Shanghai to strengthen ties to China’s government, told reporters there’s “no supply chain in the world more critical to Apple than that of China.”
It’s been a little while since we checked in with Apple, maker of smart phones, tablets, watches, and prestige television. But now Apple is back in the news in a big way, as the Justice Department announced Thursday it filed an antitrust lawsuit against the company, alleging the tech giant operates a monopoly.
Now, the Alliance for American Manufacturing doesn’t weigh in on antitrust issues, so we have nothing to say about the merits of this case. But we do have a lot of thoughts about how Apple operates the manufacturing part of its business — and there’s also big news happening there! Big day for Apple!
As Justice Department officials prepped to file their case, Apple CEO Tim Cook touched down in Shanghai on a business trip to shore up relations with Chinese leaders. It is the third time Cook has visited China within a year, a signal that he is looking to reinforce his commitment to the country at a time when many companies are finding it increasingly difficult to do business there.
Cook made sure to really emphasize just how important China is to Apple, telling reporters that there is “no supply chain in the world more critical to Apple than that of China.” Cook even gave an interview to Chinese Communist Party (CCP) run China Daily, telling the propaganda outlet that it’s “the partnership between Apple and Chinese companies that really makes things happen” and “we’ve been building up and investing more and more here.”
The Apple CEO also met with Chinese officials like Wang Chuanfu, the chairman and president of automaker BYD, which has worked with Apple through its subsidiary for more than 15 years, China Daily reported.
The level of praise Cook lavished on China is striking, especially given increasing tensions between the United States and China. U.S. Ambassador to China Nicholas Burns recently told 60 Minutes that U.S. businesses are finding it hard to continue to operate there, noting Chinese officials have “gone into American companies and shut them down and made accusations we believe are very much unwarranted.”
While some Western companies have left China, Ambassador Burns noted that most have stayed — at least for now. “Maybe they’re not leaving, but they’re not investing, they’re not making major investments until they can see exactly where the government is headed,” Burns said.
Apple hasn’t been immune to these geopolitical tensions, and has begun efforts to diversify its supply chain. The company announced in 2022 it planned to move some of its manufacturing and supply chain out of China, and its main supplier Foxconn has indeed shifted a portion of production out of China and into India. It’s even increased its U.S. production capabilities.
What sets Apple apart from Western companies — which again, are basically in a holding pattern right now — is that it also continues to invest heavily in China. Apple production remains largely entrenched in China, as CCP mouthpiece China Daily made sure to note: 151 of Apple’s 200 major suppliers call China home. Apple is also “upgrading its Shanghai research centre and opening a laboratory in Shenzhen to work on research and testing for its iPhone, iPad and Vision Pro product lines, while deepening co-operation with Chinese suppliers,” the Financial Times reported.
What’s motivating Apple to remain so bullish on China, especially at a time when others are opting for caution? It all comes down to money.
As the Financial Times reported, iPhone sales are significantly down in China — and the government has a pretty big hand in that:
Cook’s visit comes amid tumbling sales in China, which contributed $21bn to Apple’s top line in the fourth quarter, or 17 per cent of sales. The figure represented a 13 per cent year-on-year decline, and research group Counterpoint said iPhone sales in the first six weeks of this year were also down 24 per cent from a year earlier.
The US company has been hit by a top-down campaign to cut iPhone usage among Chinese state employees and the return of national champion Huawei, which last year overcame US sanctions to roll out a homegrown smartphone capable of near 5G speeds.
This month a dozen delegates to China’s top political gathering told the Financial Times they were using domestic brand phones, with several alleging iPhones could spy on them.
This is bad for Apple’s bottom line, and Cook is setting out to try to reverse it. The Chinese market is too big for Cook to ignore, especially as trouble brews at home.
In essence, Cook is placing a bet. There may be plenty of officials in China who want Huawei to dominate, but there also are folks who have a vested interest in seeing Apple succeed in the country. Cook is hoping that the latter group prevails, allowing his company to regain lost market share in China.
His trip, in essence, is a charm offensive.
It’s the same sort of strategy deployed by Tesla, which continues to maintain a massive Chinese presence despite an increasingly successful push by China to dominate the electric vehicle market. (Interestingly, the Chinese company that is beating Tesla at its own game is BYD, whose CEO Cook met with this week.)
Will Cook’s gambit succeed?
Not likely. Tensions between the United States and China only are likely to worsen for the foreseeable future, with Business Insider noting that “Beijing is expected to play a more active role in catalyzing the growth of its domestic tech sector — and squeezing any foreign entities that get in its way.” When it comes down to it, the CCP is always going to favor its own companies. At a time when the U.S.-China competition is in full swing, the CCP is going to put resources behind its own firms and make it harder for foreign rivals to continue to operate.
Apple may think it has a lot to lose by exiting China, but the truth is, it doesn’t have anything to gain by staying there, either. Things are likely to only get harder. Cook would be wise to expedite Apple’s plans to move production out of the country, and while he’s at it, invest more in the United States, too.
We’ll leave you with this: The Financial Times interviewed people who showed up for the opening of a new Apple store in Shanghai, which was part of Cook’s visit. One such person was Zheng Wei, who bought his first Apple product a decade ago and is a fan of the brand.
Even he wasn’t optimistic about Apple’s future in China. “Apple’s development prospects in China don’t look good. The economy is bad and they are often made out to be the enemy in the media,” he said.