By Patrick McGee (author of the book)
There are five reasons to predict Apple’s relationship with China will face major risks this decade:
(1) The Chinese company that poses the biggest threat to Apple, Huawei, is back with a vengeance. Just four years after the first Trump administration imposed sanctions depriving the tech giant of US-designed chips, software, and 5G antennas, Huawei began shipping phones with chipsets so fast that the Biden White House sought to investigate how it was even possible. To be clear, the chips don’t match the bleeding-edge capabilities of those manufactured by TSMC, but they’ve demonstrated far more capability than most experts had predicted. Moreover, Huawei phones now run HarmonyOS, a novel operating system that, in early 2024, overtook iOS in Chinese market share. The latest version for Chinese users is completely divorced from Android and might, within a few years, become the preferred OS for multiple Chinese brands at home and abroad. Huawei also now trumpets what it calls “Super Device,” an Apple-esque ability for its phones, tablets, computers, and earbuds to work seamlessly together.
Hours after the launch of the iPhone 16 in September 2024, Huawei held an event for the world’s first trifold smartphone, the Mate XT. The phone appears to be a marvel of industrial engineering. When folded, it’s 12.8 millimeters thin, thicker than an average smartphone but skinnier than standard foldables from Samsung and Motorola. Unfolded—it displays a 10.2-inch screen, equivalent to a standard iPad—its thickness is just 4.8 millimeters, thinner than the 5.1-millimeter iPad Pro, which Cupertino has billed as “the thinnest Apple product ever.” In the Western press, critics have derided the new Huawei handset for its $2,800 price tag. But in so doing they’ve missed the wider point. It was only in 2014 that Jony Ive complained of cheap Chinese phones and their brazen “theft” of his designs; it was 2018 when Cupertino expressed shock at Chinese brands’ ability to match the newest features; now, a Chinese brand is designing, manufacturing, and shipping more expensive phones with alluring features that, according to analysts, Apple isn’t expected to match until 2027. No wonder the most liked comment on a YouTube unboxing video of the Mate XT is, “Now you know why USA banned Huawei.”
In late 2018, the threat of Huawei sowed something close to panic in Apple’s executive ranks as the California company confronted its worst quarter since the advent of the iPhone. From a technology standpoint, Huawei may be an even larger threat now, a problem that could be exacerbated in the future by Washington-Beijing tension and Chinese nationalism.
(2) The more Apple de-risks iPhone assembly and other operations from China to India, the more it could face a backlash from Chinese consumers and Beijing. In September 2023, when iPhones were made in India on launch day for the first time, some Chinese netizens took to social media to denounce their quality, spread rumors, indulge in racist commentary, and even advocate a boycott. Chinese consumers have long thought of the iPhone as an indigenous product; if it’s instead seen as a symbol for how Western companies will “decouple” from China, that carries unknown risks. The Chinese government is in a position to make Apple’s diversification efforts painful. “They can lower the boom on you in a million different ways,” says Brady MacKay, the former US special agent who has witnessed Beijing deploy a number of tactics against other companies to make its point. “Like, raw materials—they can shut that off in a heartbeat,” he says. “Electricity—all of a sudden it’s only available four hours a day.”
(3) Then there is Apple’s push into “services,” the company’s fastest- growing and, on a margin basis, most lucrative division. Services becoming part and parcel of Apple products have varying consequences. On the one hand, they are a source of recurring revenue that, unlike hardware, are largely outside the control of China. Apple’s push into services has likely played a far larger role in diversifying its revenue than any shifts in the supply chain. But this push also causes Apple to be sensitive. When in 2019 the company rolled out Apple TV+, its Netflix-style streaming service, software and services head Eddy Cue issued just two directives to Apple’s content partners: no hard-core nudity and “avoid portraying China in a poor light.” A few years later, political comedian Jon Stewart canceled his show on the platform, citing disagreements over upcoming episodes—including one on China.
Apple TV+ isn’t even available in China, but Cupertino understands the country well enough to know when and how to self-censor.
(4) Apple’s push into artificial intelligence represents another unknown. With the launch of the iPhone 16 in late 2024, Apple revenues stand to be supercharged by Apple Intelligence—a host of potentially groundbreaking AI features inaccessible to the vast bulk of iPhone users unless they upgrade. The potential to bring forward a mass of hardware purchases is huge; so is the opportunity to charge users recurring fees for new services. Apple isn’t exactly leading the charge when it comes to AI, but its ownership of the hardware, chips, and software puts it in a unique position. For privacy reasons, Apple simply won’t allow external developers to access content within different apps on a user’s iPhone. But Siri, the Apple voice assistant, can and does do that. So while rival AI platforms such as ChatGPT can be launched from the iPhone and will prove useful for general content, Apple has a monopoly on mining data from the iPhone owner’s emails, texts, and photos to produce more personal answers.
AI’s usefulness as a driver of marketing efforts aside, Apple’s push into the technology is constrained by its dependence on China. A hyperintelligent Siri that directly answers sensitive questions about Tiananmen Square, regardless of where the user is asking such questions, is a major no-no. Apple has thus established a relationship with ChatGPT, which can answer those questions without Cupertino looking or feeling liable. Using ChatGPT might be a way to wriggle out of the tight spot they’re in, but for the fact that the technology isn’t allowed in China. As a result, Apple is searching for a local partner—which is resulting in delays and a diminished user experience. Apple’s struggles with AI in China have helped homegrown rivals look more attractive. No surprise, then, that both Xiaomi and Huawei outsold Apple in 2024, while iPhone shipments dropped by 13 percent, including an 18 percent decline in the all-important holiday quarter, according to Counterpoint Research.
(5) The comeback of Donald Trump all but ensures that trade wars, tariffs, and the threat of China as a high-tech rival will be consistent themes until 2030 and beyond. The “secret sauce” of how Apple trains America’s biggest rival with cutting-edge expertise could very well be in jeopardy. That Tim Cook personally donated $1 million to Trump’s inauguration suggests he’s well aware of the threat.
******
For the 1984 Super Bowl, Apple released the most iconic computer TV spot ever. It featured a mass of gray, brainwashed citizens, listening intently to an Orwellian Big Brother extolling the virtues of conformity on a movie screen…
Then came running into the scene a lone, athletic woman in bright colors, representing Apple. She hurled a sledgehammer against the movie screen, breaking the spell. Back then Apple was rebellious. It was innovative. It actively positioned Macintosh as the destroyer of lockstep ideology. That spirit was lost the first time Steve Jobs departed Apple, in 1985. When he returned twelve years later, his first major action wasn’t a product; it was an advertisement. As internal meeting notes from that summer indicate, Jobs told colleagues: “We are in real danger.” He’d diagnosed that Apple had lost its identity or was about to. He sought to avert crisis with major action. And that undertaking began with a few words: “Here’s to the crazy ones. The misfits. The rebels. The troublemakers.”
Apple is in real danger again. Financially, it’s the most successful company ever. But the Big Brother on the screen isn’t a work of fiction anymore. Rather, it’s incarnated in the leadership of a country that has, in important ways, captured Apple—becoming so world-leading in manufacturing that Apple’s efforts to escape are likely to prove fanciful. If Apple continues to spur Chinese development of cutting-edge processes, Americans may soon look up and see that China has become self-sufficient in advanced electronics, robotics, and chip fabrication. And from there it may be only a short leap to Xi Jinping’s goal of bringing about “the ultimate demise of capitalism,” as he pledged in 2013.
The relationship Apple enjoys with China “could blow up at any time,” a former Apple senior director says. The company’s executives have tried to demonstrate to Apple’s board of directors that the firm isn’t overly dependent on China, but a person familiar with the presentation calls it a “con job.” They add: “There’s no way that they could diversify from China in any meaningful way within the next five years. It’s just impossible.
Excerpted with permission from Simon & Schuster
Book details:
Title: Apple in China:
The Capture of the World’s Greatest Company
Author: Patrick McGee
Publisher: Simon & Schuster
Number of pages: 448
Price: Rs 899