China is crucial to Apple in two ways. First, for manufacturing; second, for sales. So far, the company has navigated the tit-for-tat tech fight between the US and China with remarkable success. But it has increased its dependence on the country in the process.
Despite deteriorating US-China relations, Chinese sales are now almost half as big as those in Apple’s “Americas” market, up from just over a third in 2019. This week, Apple made a move to further bump up revenues by selling its products on popular Chinese social media platform WeChat’s online store.
Like Tesla, Apple is a US company that outsells domestic rivals, aided by price cuts. The focus makes sense. China is the world’s biggest market for smartphones, just as it is for electric vehicles. Even as phone sales dipped last year, Apple’s own sales grew. Its iPhones accounted for 18 per cent of all Chinese smartphones sold in the first half of June, according to Counterpoint research.
All the while, Apple is trying to prove to the US that it can disentangle its supply chain from China and bring production onshore. In 2018, it announced plans to invest $350bn in the US economy, later boosted to $430bn. A recent deal with Broadcom to make 5G phone chips in US states is part of this plan.
China’s multiple Covid-19 lockdowns spurred interest in alternative production sites, particularly in India. But wholesale diversification away from China remains a pipe dream. Apple still manufactures more than 90 per cent of iPhones in China, according to data from IDC. Note too that its newest product, the “mixed reality” Vision Pro headset, is being assembled by Luxshare, a Chinese contract manufacturer.
US tech companies including Nvidia have warned that US policies that restrict Chinese access to US technology risk damaging American businesses. This year, the Cyberspace Administration of China banned operators of key infrastructure from buying chipmaker Micron’s products, for example. The Idaho company’s reaction was to announce more investment in Chinese manufacturing.
For the US, China is both customer and supplier. Washington cannot change the relationship with one without having an impact on the other. Nor can Apple. When it comes to leaving China, the company’s best bet is to continue with its strategy of all talk, little action.