The world’s most valuable company makes great products, but it may turn out that the biggest driver of its share price has been the close relationship CEO Tim Cook has cultivated with China.
Entente cordiale with the Chinese Communist party affords Apple a charmed existence when it comes to manufacturing and selling products in China. But scary data points keep popping up.
Just in recent weeks, China has sanctioned Lockheed Martin and Raytheon; begun a probe of Micron; raided the due diligence firm Mintz Group and arrested some of its staff; detained 17 Japanese businessmen including a senior member of Astellas Pharma; levied a record fine against Deloitte, and amended its espionage law to cover ordinary business activities.
Notwithstanding all that, during a recent visit to The Middle Kingdom, Tim Cook praised Apple’s “symbiotic” relationship…
Cook has embedded Apple ever deeper in China over the past 20 years. After inking a secretive 2016 agreement to invest $275bn in China’s economy, workforce, and technological capabilities, the iPhone became a best-seller. In reality, Apple is now as much a Chinese company as it is American.
Almost a fifth of its revenue comes from sales in China, and operating profits in greater China — Hong Kong, Macau, Taiwan, and the mainland — topped $31.2bn in 2022. That’s a hefty chunk of Apple’s earnings (though given the near impossibility of getting large sums out of China, those profits may not even be money good).
Apple provides more than cash and intellectual property. Relations are enhanced by the credibility Apple’s brand bestows on a repressive, autocratic state, and the (cough) flexibility it demonstrates in supporting CCP objectives. When it comes right down to it, Apple just can’t say no…
Cook talks about civil liberties and privacy: laudable sentiments irrelevant in China, where Apple has no choice but to deliver the data of its Chinese customers to the government. Unwillingly, perhaps, Apple has become a facilitator of surveillance and government censorship.
These complexities aren’t lost on management. Apple is tiptoeing — frantically — towards the exit: moving production of iPhones to India, AirPods to Vietnam, Macs to Malaysia and Ireland — and assembling hundreds of employees into “tiger teams” to shift its supply chain.
But these efforts seem futile: Apple likely will never be able to completely exit China. Even small shifts risk retaliation by Chinese overlords who might retaliate by turning Chinese consumers against Apple products. Will China — which has contributed hugely to Apple’s success — allow it to slink away? Why would they? These are problems Apple made: for the foreseeable, Apple has no choice but to do what China wants.
