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China has been fundamental to Apple’s historical success, but is also arguably the greatest risk to the company’s future.

Why are most Apple products made in China?

Although everyone assumes Apple products are made in China because labor is cheap there, that’s only part of the story – and an increasingly small part, as the company’s assembly partners move toward more and more automated operations.

Steve Jobs originally transferred most Apple manufacturing to China because it was the only country in the world with a huge ready-made supply-chain network, and the ability to scale up production almost overnight. There are three main reasons China – and specifically the Shenzhen area – is such a powerful manufacturing center.

First, the city is strategically placed, serving as the gateway between mainland China and Hong Kong. It is one of the largest shipping centers in the world, with a massive container port.

Second, the Chinese government established Shenzhen as the first Special Economic Zone (SEZ) in the country. SEZs are designed to encourage enterprise through relaxed planning regulations and generous tax incentives – and crucially, to facilitate foreign investment in local companies. It is this, as much as its geographical advantages, which has enabled it to grow at such a pace.

Third, that SEZ was established way back in 1980, meaning that the city has had over 40 years to grow into the manufacturing center of the tech world. Apple relies on a huge network of suppliers and sub-contractors, some of which may make just a single tiny component. The majority of them are based in Shenzhen and its immediate surrounds, so the logistics of bringing everything together in one place for assembly are straightforward.

What are the risk factors with China?

Being over-dependent on China carries a number of risks.

First, there is the generic one: Being overly dependent on any one country is a strategic risk. For example, the COVID-19 pandemic originated there, and had a massive impact on manufacturing capacity. Anything from a natural disaster to political upheaval could disrupt operations within a single country, so it is always wise to have a diverse range of manufacturing centers around the world.

Second, the relationship between the US and China has often been fraught. The trade war started by the previous US administration was a particularly low point, but continued tensions mean that there is always a risk of disruptions to trade between the two countries.

Third, it is increasingly damaging to Apple’s reputation to be so closely associated with a country that has a worsening human rights record – especially when the iPhone maker has no choice but to comply with local laws, however much they may conflict with the company’s own values. Apple has been required to remove VPN and a variety of other apps from the Chinese App Store, allow the iCloud data of Chinese customers to be stored on government-controlled servers, and more. Additionally, there have been growing reports of forced labor in China, including within many different areas of Apple’s supply chain.

What is Apple doing about it?

Apple has been working for a long time on diversifying its manufacturing operations, and has in recent years accelerated the pace at which it is doing so.

As explained above, this is far from an easy undertaking, but Apple now has major manufacturing operations in India, Thailand, Malaysia, and the Philippines, among other countries.

In India in particular, we are seeing the very early stages of a complete supply-chain infrastructure as the government uses a mix of carrot and stick to encourage companies to manufacture more of their components within the country – namely, tariffs on imports of components and tax breaks for local production. COVID-19 lockdowns in China also saw Apple move some iPad production to Vietnam for the first time, but it’s clear that the risks of over-dependence on China have never been greater.

Another Apple research lab opening in China, for new materials and technologies

Another Apple research lab opening | City skyline in Shenzhen, China

The bulk of Apple’s new product development work takes place in Cupertino, but the company has a number of research labs around the world. Locations include ChinaFranceIsraelJapanSweden and the UK. The company has today announced plans for a further lab in China.

Apple has two primary motivations for most of the overseas labs it operates, but there is an additional factor in the case of the latest example …

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iPhone sales ride high in Japan, plunge in China

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There’s good news and bad for Apple in two different market intelligence reports. One points to Apple’s market share rising and continuing to utterly dominate the Japanese smartphone market, while the other describes a dramatic slump in iPhone sales in China.

When it comes to Japan, it’s long been the case that there’s Apple, and then, a long way behind, there’s everyone else …

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Steep iPhone discounts being offered in China to counter weak demand

iPhone discounts in China | iPhone 15 Pro Max shown

A new report today says that there is increasing evidence of steep iPhone discounts being used in China in an attempt to counter weak demand.

It gives the example of the iPhone 15 Pro Max being offered at a $180 discount on the official price, which is significantly larger than has been offered in previous years …

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Apple faces five shareholder proposals, and doesn’t like any of them

Apple faces five shareholder proposals | Illustrative photo of voting in a public meeting

Tomorrow is the date of Apple’s annual shareholder meeting, and the company this year faces five shareholder proposals – and recommends voting against all of them.

The company went as far as trying to exclude one of them, but the Securities and Exchange Commission (SEC) ruled that it must be put to a vote …

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Apple COO Jeff Williams in Taiwan for Foxconn’s 50th, as Tim Cook steers clear

Jeff Williams in Taiwan | Taipei skyline pictured

Apple’s chief operating officer Jeff Williams is in Taiwan as a guest of honor for Foxconn’s 50th anniversary celebrations. He’s reportedly joined by his deputy, Sabih Khan.

The rare visit is likely a compromise, enabling the occasion to be marked while CEO Tim Cook continues his policy of avoiding visits to the island …

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AirDrop cracked by China, revealing phone number and email address of sender

AirDrop cracked by China | AirDrop on two iPhones, against Chinese flag

In a significant breach of Apple’s privacy measures, a new report says that AirDrop was cracked by the Chinese government, to reveal the phone number and email address of senders.

The anonymity of AirDrop was one of the reasons it has been commonly used by activists to share information about protests, and other information censored by the government …

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Major ramp-up in Apple’s plans to shift production from China, as Foxconn quadruples investment in Indian plant

Major ramp-up in Apple's plans to shift production from China | iPhone 15 models on display

We’re today learning of a major acceleration in plans to shift more production of Apple devices from China to India. In less than one year, Foxconn has increased its planned investment in an Indian plant by almost 400%.

It follows a recent report that Apple has told its battery suppliers that it would like as many iPhone 16 batteries as possible to be manufactured in India …

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iPhone 16 batteries should preferably be made in India, Apple tells suppliers

iPhone 16 batteries (iPhone 15 battery shown)

As part of the company’s continuing work to reduce its dependence on China, Apple has reportedly told suppliers that it has a preference for iPhone 16 batteries being made in India.

One battery supplier which already manufactures in India has been asked to scale-up production there, and Chinese suppliers have been urged to establish battery factories in the country …

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Foxconn revenue to fall in the holiday quarter, as iPhone 15 faces triple challenge

Foxconn revenue to fall | Stock market chart showing decline

In the second piece of somewhat gloomy iPhone news this morning, Foxconn revenue will fall during the holiday quarter, according to the company. This contrasts with its earlier forecast of growth.

More than half of that revenue comes from Apple, as the Cupertino company faces a triple challenge in China

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AAPL share price dropped 11% since last earnings report

AAPL share price dropped | Illustrative stock price graphic on phone and monitor

AAPL’s share price dropped by 11% since the company’s last earnings report in August, losing more than $400B in market capitalization. The fall is discussed a couple of days ahead of Apple’s next earnings report, on Thursday.

A new report notes that this is the first time in eight years that the company’s share price has dropped between WWDC and fiscal Q4 earnings report …

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Chinese iPhone sales fell 10%, as Huawei reemerges as competitor

Chinese iPhone sales hit by Huawei | Mate 60 Pro line-up shown

A new market intelligence report suggests that Chinese iPhone sales fell 10% year-on-year, between Q3 2022 and the same quarter this year. This was significantly worse than the overall 3% decline in the Chinese smartphone market.

Several explanations are offered, but a key one is the surprise reemergence of Huawei as a competitor – with US sanctions-busting or industrial espionage suspected …

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Apple could again be caught in crossfire as Foxconn investigated; China issues non-denial [U]

China investigates Foxconn | Zhengzhou, home to iPhone City

Apple has already found itself impacted by a diplomatic row between the US and China, and now faces the prospect of being caught up in politics between China and Taiwan. A Chinese investigation of Foxconn has been announced by state media.

Update: China has today described the investigation as a routine police matter, but has not directly addressed the widespread belief that it is attempting to apply political pressure – more at the bottom …

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TSMC earnings back reports of relatively weak iPhone 15 demand

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The latest TSMC earnings report appears to provide further evidence for recent reports of relatively weak iPhone 15 demand – when compared to last year’s iPhone 14 lineup.

While the iPhone 15 Pro and Pro Max models appear popular, it seems demand for these isn’t high enough to offset disappointing sales of the base and Plus models …

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Tim Cook turns up at Chinese games tournament as company caught in diplomatic cross-fire

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Apple CEO Tim Cook has put in an appearance at a Chinese games tournament and local Apple Store. The rest of his itinerary isn’t yet known, though it’s likely he will be attending an international political and economic forum hosted by the Chinese government.

The visit comes at a time when Apple has been caught in the cross-fire of diplomatic tension between US and Chinese governments – and Cook also managed to get caught up in a minor photo battle of his own …

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Genshin Impact developer with close relationship to Apple twice tried to evade 30% cut

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The Chinese developer behind the hugely popular Genshin Impact mobile game has twice tried to evade Apple’s 30% cut on in-app purchases, according to a new report.

This is despite a close relationship between gaming giant miHoYo and Apple, including multiple awards, a personal visit by CEO Tim Cook, and two of the company’s games being featured during the iPhone 15 launch …

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Apple complies with Chinese app law after threat to X, Instagram, and more

Apple complies with Chinese app law | Apple Store in China

A week after other companies did so, Apple has finally complied with a Chinese app law that requires developers to have a registered local company in the country.

The move comes after it was suggested that social media apps like X, Instagram, and Facebook would have to be removed from the Chinese version of the App Store

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Apple might have to pull Instagram, Facebook, Twitter, and more from the App Store in China

Apple might soon have to remove some of the App Store’s most popular apps in China. A new report from the Wall Street Journal today says that Apple will be forced to “strictly implement rules” that ban unregistered foreign apps on the App Store. Most notably, this could impact social media apps including Facebook, Instagram, WhatsApp, and Twitter (currently known as X).

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