Source: Blog – Alliance for American Manufacturing
China took a bite, sure. Getty Images
But it got much more than a lousy T-shirt.
Last week The Information, a tech news site, reported that Apple signed a secret agreement with the Chinese government in 2016 to invest the equivalent of $275 billion in the country over a five-year period. The deal was hammered out over a series of visits to the country by CEO Tim Cook, taken after Chinese regulators began targeting the iPhone and Apple’s sales began to falter.
That Information article is behind a paywall. So, as written up in MacRumors:
Alleged internal documents show that Cook “personally lobbied officials” in China over threats made against Apple Pay, iCloud, and the App Store. Cook set out to use a “memorandum of understanding” between Apple and a powerful Chinese government agency called the National Development and Reform Commission to formally agree to a number of concessions in return for regulatory exemptions. The 1,250-word agreement was written by Apple’s government affairs team in China and stewarded by Cook as he met with Chinese officials.
This is not a complete list of the aforementioned concessions, but the MOU committed Apple to signing more deals with Chinese software companies, using more Chinese-made components, collaborating with Chinese universities on research and development, training up its Chinese workforce, and opening a number of Apple retail stores. It also agreed to politically motivated stuff like make the Diaoyu (Senkaku) Islands appear larger in Apple’s Map when used in China. In return, basically, China’s regime agreed not to choke off Apple’s access to the Chinese consumer market, which is, you know. Substantial.
If I were to judge based on the amount of coverage this story has received: Despite the deal being worth $275 billion, this isn’t exactly a revelation. Apple is one of the most successful technology companies on the planet and has had a presence in China for years. And, again, China’s market is enormous, and its government regularly forced technology transfer on foreign businesses in years past before they could access that market. Apple is in the business of making money. Lots of people in China like smartphones, and Apple wants to be the guys to sell them one for $600 or $700 or whatever so those consumers can get on the Chinese equivalent of Twitter and get mad at the Chinese equivalent of Ben Affleck badmouthing his ex-wife to the Chinese equivalent of Howard Stern (provided that none of these people are members of the Chinese political elite; in that case, the story will be warped and censored).
What’s more, Tim Cook is Apple’s supply chain guy, and is one of the main reasons the company has such a presence in China in the first place. It’s not surprising he leveraged relationships with government officials there to get this deal.
But it is interesting to ponder the details in light of the ongoing trade and diplomatic tension between the U.S., where Apple products are designed, and China, where Apple products are made. As an analysis published by Reuters points out, the deal ultimately probably bought Apple little more than time to keep ahead of its rivals. “Apart from a respite from pressure, it’s unclear what benefits Apple reaped,” reads an analysis in Reuters, which also points out that Apple generated only $249 billion in sales during the five-year window covered by the agreement.
Well, as of October, Apple is the largest smartphone brand by sales in China, an authoritarian state with what will soon be the world’s largest economy.
It all comes down to money. Money money money money money! For market access, Apple will acquiesce.
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