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September 2010 - September 2022

China

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.

china Stories September 30

We’ve been talking for many years about both the need and the difficulty of reducing Apple’s dependence on China, and Bloomberg’s research division has now put some estimated numbers on it.

The research suggests that moving just 10% of Apple production out of China would take around eight years …

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china Stories September 21

iPhone production in India will increase to around 25% of total global output by 2025, according to a new analyst report. The report suggests a similar percentage of other Apple products will be made outside China by the same year.

We’ve seen a number of signs recently that India is growing increasingly important to Apple as a second key manufacturing hub, as the company continues efforts to reduce its dependence on China …

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china Stories September 16

A Chinese spy carrying out industrial espionage against GE Aviation and Honeywell’s aerospace division was caught with the help of access to an iCloud backup of his iPhone. The data obtained included a never-before-seen copy of a security form used by the Chinese security service when recruiting spies.

Xu Yanjun, an officer in China’s Ministry of State Security (MSS) was arrested and brought to trial in the US after investigators lured him out of the country to a meeting in Belgium, from where he was extradited to America …

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china Stories September 8

The controversial Apple data center in Guiyang, China, has been hit by the latest citywide COVID-19 lockdown to be imposed by the government.

The data center is currently taking emergency measures, including closed-loop operation, in an attempt to keep the iCloud server online …

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china Stories September 1

Update: The gap between China and India is said to have closed from two months to six weeks. Kuo believes that iPhone 15 production next year will begin simultaneously in both countries.

There have been suggestions that iPhone 14 production would start simultaneously in China and India, significantly improving early availability of this year’s lineup. But a new report today said that Apple has had to abandon any hope of achieving this …

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china Stories August 31

Arizona’s State Governor Doug Ducey has given an update on the TSMC Arizona plant, stating that construction of the main chip facility is now complete. The plant is expected to fabricate some of Apple’s A-series and M-series chips.

In a likely bid to appease China, TSMC issued a statement stressing that Ducey had not visited the company during his trip to Taiwan …

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china Stories August 24

A series of recent reports have all pointed to relatively strong Chinese iPhone sales within an overall declining market. The latest one echoes this, stating that Apple’s most expensive models have achieved the greatest growth, up 147% year-on-year.

The market intelligence data shows an interesting split in sales by price level …

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china Stories August 17

MacBook design changes have made it practical for the machines to be assembled in Vietnam for the first time. So far, only iPads and AirPods have been made in the country.

The move marks the continuation of Apple’s gradual effort to reduce its dependance on China as a manufacturing center …

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china Stories August 12

Taiwan invasion fears grow after China rehearsed blockade, but no imminent threat

Concerns about the possibility of a Taiwan invasion by China have grown, as more details have come to light about Beijing’s stance.

The main concern, of course, is the safety and human rights of Taiwanese residents, but the situation does also have the potential for substantial disruption to production of Apple products …

china Stories August 10

Foxconn earnings comfortably beat expectations during the second quarter of the year, coming in at NT$33.3B ($1.1B) against consensus projections of NT$30.8 ($1.02B).

Strong demand for the iPhone 13 made a direct contribution to the company’s income, of course, but it also indirectly helped with assembly of products for Sony and Dell …

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china Stories August 3

The controversial Nancy Pelosi Taiwan visit reportedly included meeting with TSMC chairman Mark Liu to discuss the CHIPS Act in relation to the chipmaker’s Arizona plant. The plant is expected to make chips for Apple.

China is extremely unhappy about the visit, and has responded by announcing live-fire military exercises in waters close to the island …

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china Stories July 28

A new market intelligence report says that Chinese smartphone brand Honor managed to double its year-on-year sales in Q2, and that copying iPhone features was one of the reasons for this success.

Honor was the only brand to increase its market share during the quarter, though Apple fared better than all remaining brands …

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china Stories July 25

Full-on Foxconn COVID-19 precautions are back in effect, at the request of the city government in Shenzhen, China. The company has been asked to return to closed-loop production, where workers live in dormitory accommodation on the campus, and are prohibited from physical contact with anyone outside the factory complex – including family members.

While Foxconn is downplaying the measure, it is raising concerns about a repetition of Shanghai-style lockdowns that could create extremely difficult conditions for workers and other residents, as well as significantly disrupting production …

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One of the secrets to the success of iPhone sales in China is something the company doesn’t usually like to admit: the widespread availability of Apple discounts. Usually these are offered only by third-party companies, even if the iPhone maker itself is offering them the discount to pass on to customers.

But today the company is promoting Apple discounts on a whole range of products on the company’s official website

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china Stories July 20

Bloomberg is the latest publication to report on iPhone shipments growing in China after COVID-19 lockdowns lifted. Apple was responsible for leading a rebound in the smartphone market in June as Chinese users are buying more iPhone 13 than ever.

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china Stories July 13

Primary iPhone assembler Foxconn has reportedly bought a stake in China’s top chipmaker, Tsinghjau Unigroup – but appears to have done so without the necessary government approval.

The move comes at a time when Apple is seeking to widen its chip supplier roster to guard against supply chain disruptions …

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china Stories July 7

Back in March, we warned of the risk of Apple’s disaster scenario: Chinese takeover of Taiwan. Yesterday, the heads of both US and UK security services gave an “unprecedented” warning that this is not only possible but that China has been taking steps to prepare for this.

If it happened, it would lead to the almost total disruption to the vast bulk of Apple’s manufacturing resources …

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china Stories July 1

Mac sales in China have been growing in recent years, with Apple Silicon models accelerating their popularity. But the Chinese government has a plan to reduce its reliance on US tech from Apple and Microsoft: creating its own operating system …

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china Stories June 30

Chinese iPhone sales down 4% year-on-year might sound like bad news for Apple, but in the context of a 25% fall in the country’s smartphone market as a whole, it’s actually the opposite.

It might also seem odd to track sales during a specific 18-day period in June, but there’s a very good reason for that …

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china Stories June 27

The scale and reach of Chinese surveillance of its own citizens is well documented, but a new piece shows that the country’s government is now trying to use this vast trove of data to predict crimes and protests before they happen.

The Supreme Court ruling on abortion is also raising fresh concerns about the way that personal data may be used to prosecute women. We’re increasingly living in a world where Apple’s decision to have privacy be a major focus is looking increasingly prescient – but even the Cupertino company may now need to do more …

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china Stories June 22

The Uyghur Forced Labor Prevention Act came into force in the US yesterday, with Apple having failed in some of its earlier lobbying attempts around the law. (Technically, the law came into effect in December of last year, but enforcement began yesterday.)

The law bans US companies from importing goods manufactured in China’s northwestern Xinjiang region unless they can prove that there was no forced labor involved anywhere in the supply chain …

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china Stories June 1

The Shanghai COVID-19 lockdowns have caused massive disruption to Apple’s supply chain in China, and the company has reportedly responded by moving some iPad production to Vietnam – the first time it has ever done so.

Apple suppliers have also been asked to stockpile components in readiness for any further supply chain disruption, which is causing concern for some …

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china Stories May 30

The latest official data shows that Chinese smartphone demand is down by around one-third, year-on-year. Coupled to existing supply constraints, many are expecting troubled times ahead for most smartphone makers, given that China is responsible for around a fifth of all smartphone sales.

However, while the iPhone is likely to be hit alongside other smartphones, Apple is expected to do better than its competitors …

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china Stories May 25

iPhone 14 availability is at risk in the worst-case scenario, says a new report today, as preparatory work for production has fallen behind schedule.

Apple and its suppliers are said to be working hard to make up for lost time, but this is proving “challenging” given COVID-19 shutdowns in China

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