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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.

Apple officially launches Apple Pay in China

After a number of reports in recent months regarding Apple’s preparations to launch its Apple Pay payments service in China, the company today announced the service is now available to customers in the country.

The announcement comes via Apple’s news site for developers and notes that apps and goods in the country can now accept the Apple Pay payments service using supported credit and debit cards. 


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Bank confirms Apple Pay launching in China this week, going live on Thursday

Industrial and Commercial Bank of China (ICBC) has confirmed earlier reports that Apple Pay would launch in China this week, social media posts stating that its service will go live on Thursday 18 February. A further 18 lenders are signed up to the service, Reuters reporting that two of them – China Guangfa Bank Co and China Construction Bank Corp – will launch on the same day as ICBC.

Apple has been working on bringing its mobile payment service to China for some time, creating a Shanghai-based company to manage the rollout back in September of last year, with this month long rumored to be the target launch date. China will be the fifth country to go live, after the USA, UK, Canada and Australia.

As Reuters notes, however, Apple may face something of an uphill battle in signing up users in China …


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Apple Pay could be coming to France this year as China launch rumored for this week

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A new report French website iGen indicates that France could be seeing an Apple Pay announcement in as early as the first half of this year. While Apple announced the UnionPay partnership for China two months ago, there has yet to be any signs that other additional countries outside the US and UK (aside from Australia and Canada’s American Express arrangement) would be seeing Apple Pay any time soon. Other reports believe that China could be seeing Apple Pay, which is promised to go live in early 2016, activated as soon as this Thursday at 5 AM (Beijing time).


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Tim Cook holds company-wide Town Hall, talks iPhone dependence, benefits, pipeline & India

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In the days following Apple’s record Q1 earnings announcements, Apple CEO Tim Cook and other top Apple executives held a Town Hall meeting at the Infinite Loop headquarters in Cupertino to reveal new announcements and take attendee questions.

Multiple sources in attendance at the event said that Cook as well as newly appointed Chief Operating Officer Jeff Williams each spoke and made announcements and teases related to new employee benefits, future iPad growth, Apple Watch sales, future retail stores in China, Apple Campus 2, and the future product pipeline.

Cook also fielded questions from the audience, attempting to reduce concerns related to the company’s iPhone dependence, discussing porting more Apple services to Android, growth in India, and releasing cheaper iPhones to appease growing markets.


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Opinion: Why ‘peak iPhone’ is likely temporary, but Apple may have to think the unthinkable on price

After literally years of analysts claiming that we’ve reached ‘peak iPhone’ – that Apple’s year-on-year growth had gone as far as it could go – that day has finally arrived. iPhone sales last quarter were essentially flat (up just 0.4% year-on-year), and the company yesterday forecast that this quarter will see its first ever year-on-year decline in revenue since 2003.

If Apple hits the midpoint of its projected revenue for the current quarter, it will suffer a year-on-year fall in income of 11%. For the first time in 13 years, the ‘Apple is doomed’ merchants can cite real-life numbers as support for their position.

The reality, of course, is far more nuanced. There are some very specific reasons why the current quarter will be such a tough one, and why ‘peak iPhone’ is likely to be temporary, and I’ll get to those in a moment. But there’s also a bigger picture that suggests that Apple may have to be willing to think the unthinkable when it comes to the huge margins it has been able to enjoy to date …


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Fire last night at Foxconn’s main iPhone manufacturing plant “spanned several floors of the factory”

Update: A video from the People’s Daily does make it seem surprising that production would be unaffected.

[tweet https://twitter.com/PDChina/status/691315066776469504]

A fire broke out last night at Foxconn’s main iPhone manufacturing plant in Zhengzhou, China, with the WSJ noting that it spanned several floors of the factory. Foxconn confirmed reports, but said that there were no casualties and production was not affected.

Local authorities said they are investigating the cause of the fire. The fire began in the central air conditioning fan and ventilation ducts on the roof of one of Foxconn’s Zhengzhou plants, according to a statement on the website of the Zhengzhou Airport Economy Zone.

There have been previous fires and explosions at Foxconn factories, the most serious of which was at an iPad 2 production facility in 2011, when three workers were killed and fifteen injured. That incident also had a major impact on iPad production.

Photos: 163.com and Weibo user chengdu

Apple’s Chinese retail store roll-out continues gathering pace, fifth this month, 33 in total

At its current rate of expansion, Apple could conceivably hit its October goal of 40 retail stores in China within a couple of months. The company has just announced that its 33rd Apple Store in China will open on 31st January, making it the fifth new store in the country in one month … 
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AAPL shares close below $100 for first time in 15 months amid China and ‘peak iPhone’ fears

Apple shares yesterday closed below $100 for the first time in 15 months, the WSJ noting that the value of the company has dropped by $100B in a little over a month, losing 7% this week alone.

The Cupertino company’s 4.2% drop on the day was greater than the overall market’s slide and the 3% slump in the Nasdaq Composite, which closed down 10% from its May peak. Since early December, Apple has shed $100 billion in market value.

The slide is being attributed to two factors: one (semi-)factual, one speculative …


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Apple on a roll with retail expansion in China as it announces 30th store, second this month

China’s current economic problems – share trading suspended for the second time in a week after stocks fell 7% – doesn’t seem to be impacting Apple’s retail store expansion program in the country. The company has announced the opening of its 30th retail store in China, the second one it is opening this month. Back in 2014, the company set a goal of opening 40 stores in the country by October of this year.

The latest store is in Xiamen, a port city on the Taiwan Strait. Xiamen is home to one of the four Special Economic Zones established by the Chinese government back in the 1980s, to encourage foreign investment and trade.

Unusually, the store opens on a weekday, with Apple’s website showing that it will open at 10am on Thursday 14th January. The store is located in the SM Lifestyle Center at 399 Jiahe Road, in the Siming District of the city. It opens just a few days after the 29th store in Shenyang.

Apple continues China expansion, as store #29 opens on Saturday [Update: Latin America store rumors]

Update: An anonymous source cited by MacRumors claims that Apple is planning a major expansion of its retail store program in Latin America, with the first two stores slated for Mexico City. A blurry photo of a claimed internal recruitment document (below) is provided.

The tipster claims the first Mexico City store will be located in the upscale Via Santa Fe area of Centro Santa Fe, the largest shopping mall in Latin America, while the second store will allegedly be in a prominent shopping district and adopt Apple’s next-generation store design used in Brussels, Cupertino, Dubai and elsewhere.

Other countries are also said to be in line for their own Apple Stores, including Chile, Peru and Argentina.

Apple’s rapid expansion in China continues apace as it works toward its target of 40 retail stores in the country by October of this year. The company is currently opening one Apple Store a month, with #27 in November, #28 in December and now #29 set to open this Saturday in Shenyang. 

Apple is mostly opening its Chinese stores inside major shopping malls, and this will be the sixth to open in a MixC mall.

This will be Apple’s second store in Shenyang, which is a major commercial hub for north-east China. The city has a population of just over eight million, and is noted for trade with Japan, Russia and Korea.

China is also known for counterfeit Apple products, with Dom recently taking an amusing look at some of the knock-offs he found in a recent visit to Shenzhen.

A deep dive into the insane market of absurd counterfeit Apple products [Video]

Ever wonder where most of the world’s knock-off Apple products and electronics come from? Recently, I took a trip to Shenzhen in China and got to check out the madness first hand. In Shenzhen, they’ll slap an Apple logo on just about anything and try to pass it off as legitimate. Needless to say, it makes for a very comical experience…


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Apple extending iconic Hong Kong store to a third floor, new space opening soon

While Apple may be rolling out new stores in mainland China at a rapid rate, it isn’t neglecting Hong Kong. Some five months after opening its fourth Apple Store on the island, it is now expanding its very first store there.

The store at the International Finance Center is suspended above a major road in the city, and AppleInsider obtained a photo of a hoarding on the third floor stating that the new level would “open soon.”

Just a fortnight after fifth Beijing location, 28th Chinese Apple Store opening on Saturday

It’s only a fortnight since Apple opened its 27th retail store in China, but there’s no sign of any let up in pace as the company heads towards its goal of 40 Apple Stores in China by October of next year. It has just added number 28 to its website, noting that the new store in Nanning will open on Saturday.

The store will be located inside the upmarket MixC complex in the Qingxiu District. In addition to a shopping mall with designer brands, the complex also boasts a 5-star hotel, upscale offices and a high-rise luxury residential building.

Nanning, located close to the border with Vietnam, is known as China’s “Green City” due to the tropical plant-life in its many parks. The city is home to around 6.6 million people.

Apple reaches first crucial agreement for early 2016 Apple Pay China launch

Following Monday’s report that Apple is planning to launch Apple Pay in China in February of next year, Bloomberg reports that it has reached a preliminary agreement with UnionPay to use its card-processing terminals. The agreement was an essential step along the way as UnionPay has a monopoly on card-processing in China.

The agreement is provisional, as it still requires the individual banks to agree. They have reportedly been reluctant to agree to the 0.15% cut Apple takes of each transaction. Given the transaction volumes involved, that soon adds up to a significant chunk of the tiny percentage banks charge retailers.

That isn’t the only hurdle Apple needs to overcome … 
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Report: Apple to launch Apple Pay in China by February of 2016

Back in September, Apple created a company in the Shanghai free-trade zone, hinting at its plans to launch its mobile payment solution Apple Pay in the country. Now, Dow Jones & WSJ report that Apple plans to launch Apple Pay in China by February. Apple has reportedly secured agreements with the four largest banks in China to support the platform.


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The Chinese Apple Stores keep coming: number 27 opens on Saturday

Apple is making good progress with its aim of having 40 retail stores open in China by next October, announcing that the 27th store will be opening on Saturday in the Chaoyang Joy City shopping mall, Beijing. It will be the fifth Apple Store to open in China’s capital city.

Apple has doubled its year-on-year revenue from China for two quarters running, with the country already representing a larger market than Europe and on track to become a bigger one that the USA … 
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Apple Watch hits Swiss watch industry hard, suffers biggest slump in six years

Jony Ive’s year-ago prediction that the Swiss watch industry would be in trouble once the Apple Watch launched appears to have been correct (his actual language was said to have been stronger). Bloomberg reports that Swiss watch exports suffered their biggest slump in six years.

Shipments declined 12 percent to 2 billion Swiss francs ($2 billion), the Swiss customs office said in a statement Thursday. Adjusted for fewer working days, the drop was 7.6 percent. Exports to the U.S. dropped 12 percent.

“2015 has been one to forget for the watchmakers,” said Jon Cox, an analyst at Kepler Cheuvreux in Zurich.

The figures show that both higher- and lower-end brands are being hit hard, especially in the world’s biggest market for Swiss watches, Hong Kong … 
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Opinion: By the iPhone’s 10th anniversary, China will be Apple’s biggest market

The old world was a simple one. Apple needed two things to succeed: a well-off market willing to pay a premium price for its products, and a low-cost manufacturing base to build them. The U.S. and Europe provided the former, China the latter.

The idea that China could become Apple’s biggest market in less than a decade would have seemed unimaginable back when the first iPhone went on sale in 2007. It now looks inevitable.

Let’s run the numbers … 
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Thomson Reuters: Analysts forecast AAPL will announce Q4 revenue of $51B, up 21.3% year-on-year

The consensus forecast among analysts polled by Thomson Reuters for Apple’s Q4 earnings is $51.11B, up 21.3% year-on-year. This would be slightly above the top end of Apple’s guidance of $49-51B reportsRe/code. Analysts predict unadjusted net profit of $10.72 billion, or $1.88 per AAPL share – up from $1.42 per share last year … 
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Email suggests Singapore will get its first Apple Store late next year on Orchard Road

Pure Fitness has sent an email to its customers reporting that its branch at 170 Orchard Road in Singapore will be closing at the end of the year to make way for a new Apple Store set to open in late 2016, reports TechInAsia.

Pure and other tenants will be handing back space to make way for the opening of a new Apple store in late 2016.

It made the same statement in a later press release. While this is an unconfirmed report, the location would make sense … 
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Sluggish Chinese economy hasn’t dented Apple’s confidence in the country, says Tim Cook

Apple CEO Tim Cook, who is currently visiting China, has told the official Xinhua news agency that nothing has changed Apple’s view of the country.

I know some people are worried about the economy. We’ll continue to invest. China is a superb place to be. Nothing has changed that … 


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KGI forecasts 23% year-on-year iPhone growth for Apple’s Q4, falling in following two quarters

An investment note by KGI predicts that Apple will next week report year-on-year iPhone sales up 23.6% to 48.5M, but says that that holiday quarter sales will be down on last year, and that the decline will continue into the first quarter of next year.

KGI says that China is the big factor, included as a launch country this year, and hence contributing to calendar Q3/fiscal Q4 sales, while last year’s China sales fell into the holiday quarter. It estimates that 22M of the iPhones sold last quarter were the new iPhone 6s/Plus. Apple sold 47M iPhones in the previous quarter.

Despite the launch of the iPad Pro next month, both iPad and Mac sales will fall across all three quarters, predicts the report … 
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Apple pushes new China clean energy programs to help suppliers become carbon neutral

Just a few days after CEO Tim Cook joined the Council for Sustainable Urbanization to fight climate change in China, Apple this evening has revealed a handful of new programs in China that promote the use of clean energy. Apple says that the programs will help avoid 20 million metric tons of greenhouse gas pollution in China between now and 2020, which is the equivalent of removing 4 million vehicles from the road for one year.


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