Why Apple's Not Decoupling From China

All of the top 10 high-end smartphones sold on China's JD shopping site are from either Apple or Huawei. The list includes the iPhone 15 Pro Max, iPhone 16 Pro Max, iPhone 16 Pro, Huawei Mate 60 Pro, Huawei Pura 70 Pro, iPhone 15, iPhone 16, Huawei Pura 70 Pro+, Huawei Mate 60 Pro+ and Huawei Mate X5.

Huawei made a splash with the launch of its Mate XT Ultimate Design dual-hinge, three-panel folding smartphone on September 10. Priced at US$2,800 or more depending on memory capacity, it preempted the launch of Apple's iPhone 16 in China with its 10.2-inch maximum screen size and other top-of-the-line features.

Against this competitive backdrop, Apple announced on October 10 the establishment of its new“advanced application R&D center” in the Shenzhen Park of the Hetao Shenzhen-Hong Kong Science and Technology Innovation Cooperation Zone.

The center will be Apple's main applied research laboratory in the Guangdong-Hong Kong-Macao Greater Bay Area, succeeding an older facility established in 2016. Apple maintains other R&D centers in Beijing, Shanghai and Suzhou.

The Shenzhen Daily reports that“The lab is designed to encompass business operations of Apple Greater China, including the R&D operations originally planned for the Asia Pacific, which will further consolidate Shenzhen's core role in Apple's intelligent manufacturing and supply chain.”

Back in 2016, Apple CEO Tim Cook said,“We realized the skill level of Shenzhen's factories was gradually leading other places in the world.”
This is even more the case now.

Over 1,000 employees at the facility will work on hardware development, intelligent manufacturing and testing for iPhones, iPads and other products. They will also collaborate with local suppliers to strengthen supply chains.

China's Communist Party-run Global Times quoted Li Yong, a senior research fellow at the China Association of International Trade, saying,“This is a reasonable decision made by Apple amid [a] complex global political and economic environment.”

Reasonable and probably necessary for Apple to maintain its position in the lucrative Chinese market.“Apple has stepped up operations in China although the US government continues to seek 'decoupling' with China with intensified sanctions, baseless accusations and repeated provocations against Chinese companies,” Global Times reported.

The article noted that Apple chief operating officer Jeff Williams visited China in July, soon after the Communist Party's Central Committee's third plenary session approved a resolution calling“opening up” to the outside world a“defining feature of Chinese modernization.”

Williams told Chinese news media that over 70 of Apple suppliers maintain factories in Guangdong province alone,“which determines the special significance of the Guangdong region centered on Shenzhen to Apple's supply chain.” (Guangdong was among the coastal provinces that ordered government and state firm employees to stop carrying iPhones to work.)

Of 187 suppliers that accounted for 98% of Apple's direct spending on materials, manufacturing and assembly last fiscal year, 157 had operations in China and 56 were Chinese-owned. In comparison, only 14 were Indian-owned. Despite recent rapid growth, India still accounts for less than 5% of Apple's total revenues.

Apple and its CEO, Cook, have faced considerable criticism from US politicians who are opposed to the company's business practices in China.

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In October 2019, US senators Ted Cruz of Texas, Ron Wyden of Oregon, Tom Cotton of Arkansas and Marco Rubio of Florida, and representatives Alexandria Ocasio-Cortez of New York, Mike Gallagher of Wisconsin and Tom Malinowski of New Jersey, wrote to Cook“to express our strong concern about Apple's censorship of apps, including a prominent app used by protesters in Hong Kong, at the behest of the Chinese government.”

In November 2022, Senator Josh Hawley of Missouri wrote,“I'd like to know why Apple continues to aid and abet the totalitarian regime in China... [Apple's]“activities in China are unconscionable and present substantial material risks to your stakeholders... I urge you to take meaningful steps to end operations in China and to reshore production to the United States.”

In late September 2024, Congressman John Moolenaar of Michigan, chairman of the House Select Committee on the Chinese Communist Party, wrote to Defense Secretary Lloyd Austin about the supposed threat posed by Chinese flat panel displays. Earlier in the month, Apple had begun sourcing OLED displays from China's BOE Technology, a company that Moolenaar identifies as linked to the Chinese military.

Yet in October reports indicated the Biden administration is talking with China about renewing the US-China Science and Technology Agreement, which expired in August. The US side wants to modify the agreement to protect US intellectual property more effectively, but is not aiming for a complete decoupling from China.

Moolenaar, on the other hand, believes that“We absolutely should not encourage additional science or tech collaboration with the Chinese Communist Party.” How Moolenaar and other politicians' anti-China sentiments might affect Apple won't likely be known until after next month's US presidential and congressional elections.

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