Apple has grown so much in China over the last two years that its regional operating profit far exceeds the country’s native tech giants, fueled by extensive diplomatic efforts.
It is well known that Apple relies heavily on China for its massive production capacity, albeit one that is in the spotlight due to a COVID outbreak affecting its biggest iPhone factory. At the same time, Apple is also seeing business in the country soar considerably, making it the biggest in China.
The pandemic’s lifestyle changes allowed Apple’s China business to grow considerably in a short space of time, with operating profits up 104% over 24 months to $31.2B in the financial year to September. The Financial Times writes this is more than China’s top two tech companies combined, with Tencent at $15.2B and Alibaba at $13.5B.
The publication points to the profits as being the result of a bargain between Apple and China that allowed the iPhone producer to avoid a “crackdown on homegrown tech groups.”
The deals, created as part of CEO Tim Cook repeated diplomatic visits to the country over the years, has helped Apple significantly bolster its supply chain in the region. The bargain helps Apple maintain its “unfettered access” to cost-effective labor and factories, which are important to its success.
“It’s clear to Beijing that it’s a two-way street,” said Brian Merchant, author of “The One Device: The Secret History of the iPhone.” With higher pay and working standards for firms contracting to Apple, it’s “helped boost wages towards the middle class.”
However, critics insist that such a closeness to the government and access to resources has also made Apple more willing to go with administrative demands. This includes storing Chinese user data in a data center owned by a provincial government, the crackdown on thousands of apps from the App Store, and for Apple not to rock the boat on sensitive topics.
“Apple’s vision of a controlled, locked-down ecosystem for the customer experience maps into the same vision, the same control, that the Communist party wants to have in China,” said Guardian Project director Nathan Freitas. “They see eye-to-eye on what, for a harmonious society, you need. It’s just one is a phone ecosystem, the other is a nation.”
The diplomacy has its other benefits for Apple, including the severe weakening of Huawei. In 2019, Chinese citizens helped buy Huawei smartphones, supporting the local producer to a point that it overtook Apple in global sales that year.
Also in 2019, Huawei brought out 5G-capable smartphones, with Apple following in 2020. However, the security-related sanctions brought against Huawei by the U.S. in 2020 cut off access to key technologies, such as 5G chipsets, which severely harmed the company in a short space of time.
As Chinese consumers moved away from Huawei’s sudden lack of access to U.S.-based 5G chips, Apple saw its market share grow in comparably equal measure, dominating the premium end of the smartphone market.
Now, Apple practically owns the $600+ smartphone market in China, with few rivals able to compete at that level.
