China, Not Cupertino, Holds Apple's Center of Gravity

08 Oct, 2023

China, Not Cupertino, Holds Apple's Center of Gravity

While Apple's corporate headquarters basks in the sunshine of Cupertino, California, the company's true epicenter resides in China—a situation now fraught with urgency amid escalating geopolitical tensions between the United States and China. This is especially significant as Apple maintains its position as the world's most valuable tech corporation.

Since 2001, China has evolved into the pivotal hub for Apple's device manufacturing, ranging from the era of iPods in the 2000s to the contemporary iPhone era. Reports indicate that roughly 95% of Apple's product lineup, including iPhones, AirPods, Macs, and iPads, is currently manufactured in China. While Apple is making efforts to diversify by shifting some manufacturing to India, experts anticipate a gradual process.

According to estimates from Taiwan-based Isaiah Research, a supply-chain consultancy, a substantial majority—up to 83%—of iPhones will continue to be produced in China, with India contributing only 23% or less to the production.

Apple's reliance on China extends beyond its manufacturing footprint. Foxconn, based in Taiwan, stands as one of Apple's most critical contractors and is the largest private employer in China. Apple's presence in China encompasses approximately 1 million employees, along with support for an additional 4 million jobs through its manufacturing and tech ecosystems, as stated on the company's Chinese website. Moreover, Apple has recently entrusted a Chinese contract manufacturer with the assembly of its forthcoming Vision Pro mixed-reality goggles.

This heavy dependence on China for hardware production presents a significant challenge for Apple, as it makes the company susceptible to geopolitical considerations, such as the Chinese government's censorship of software—a dimension often underestimated in geopolitical discussions.

Despite Apple's initial reluctance, it is now adhering to new regulations in China, mandating that new apps receive government licenses before they can be launched on the China App Store. In essence, this grants the Chinese government direct authority to permit or reject Apple's apps, a scenario that does not have an equivalent counterpart in the United States (Google's Play Store is not available in China). This approval process underscores the mounting tensions between China and Western countries.

Gene Munster, Managing Partner at Deepwater Asset Management and a seasoned Apple observer noted that this situation highlights the growing tensions between China and the West. Any minor shifts in this dynamic risk retaliation by Chinese authorities, which could involve turning Chinese consumers against Apple products.

This is already becoming evident. While Apple's latest iPhone 15 enjoys brisk sales in China, the Mate 60 Pro—a new 5G smartphone from Chinese tech giant Huawei, released in August—has been hailed as a symbol of China's increasing autonomy from Western influences. Reports have also emerged suggesting that China has banned iPhones for government officials, impacting Apple's stock price.

Apple CEO Tim Cook has often characterized the company's long-standing relationship with China as a mutually beneficial partnership. However, whether China shares this perspective remains uncertain.