Date
23 October 2019
People walk past an Apple store in Beijing. There have been fears that the US tech giant could be targeted by the Chinese amid Beijing’s trade war with Washington. Photo: Reuters
People walk past an Apple store in Beijing. There have been fears that the US tech giant could be targeted by the Chinese amid Beijing’s trade war with Washington. Photo: Reuters

Why China won’t target Apple despite the US Huawei ban

Washington’s sanctions on Huawei Technologies have stirred nationalist sentiment in China and prompted some mainlanders to call for retaliation against American firms. With the US trade war threatening to morph into an attack on the Chinese tech industry, Beijing should take some action of its own against individual US enterprises to show America what is at stake, the argument goes.

Amid the calls for revenge on American firms and their products, there is one name that is being bandied about more often than others in Chinese online discussion forums: Apple.

Well, it’s not difficult to understand why Apple is seen as a juicy target given the iPhone maker’s huge dependence on China, in terms of manufacturing operations as well as the consumer market.

If Beijing places curbs on Apple’s China operations, it could deal a severe blow to the US firm and send a strong message to Washington, Chinese citizens have said.   

Some “patriotic” mainlanders have gone even further, saying China should ban iPhone sales in the country as a tit-for-tat move in the wake of the Trump administration’s clampdown on Huawei.

The outpouring of nationalist sentiment is understandable given the rough treatment that Huawei faced at the hands of US authorities recently, and media reports that Washington is mulling action on some more Chinese enterprises in a “tech cold war”.

Still, we need to ask this question: how realistic are the calls for punishing Apple, and is it even feasible or wise for China to contemplate action against the consumer tech behemoth? 

The answer, taking into account various factors, would be ‘no’.

China can make some noises, but it knows too well that it cannot threaten Apple and its existence in the country, or push things beyond a point.

Apple will no doubt suffer if it is forced to shift its manufacturing operations, but China will feel even more pain if the US tech giant walks out or curtails its operations in the country.

First and foremost, let’s bear in mind the fact that Apple’s device assembly operations, through contract electronics partners such as Foxconn, are a big contributor to China’s employment market.

Factories that churn out iPhones, iPads and other Apple gadgets employ hundreds of thousands of Chinese in mammoth facilities, providing economic security to the workers as well as boosting the local economies. 

Also, if Apple is forced to move production out of China, it will have an adverse impact on the broader tech ecosystem in the world’s second largest economy.

The US firm currently sources many components from Chinese suppliers. If it is compelled to move production elsewhere, several supply chains will get affected, and the damage to the Chinese industry will be huge.  

China’s tech firms will be the first to acknowledge the beneficial effect that Apple’s operations have had on the broader sector landscape. 

Huawei’s founder and CEO, for one, has said that he would oppose any retaliatory move by China against the iPhone maker despite Washington’s escalating trade war. 

In an interview with Bloomberg, Ren Zhengfei dismissed calls for tit-for-tat action against Apple. 

“That will not happen first of all, and second of all if that happens, I’ll be the first to protest,” Ren said.

“Apple is the world’s leading company. If there was no Apple, there would be no mobile internet,” Ren said. “Apple is my teacher, it’s advancing in front of us, as a student why should I oppose my teacher?” 

The Huawei chief has good reason to refer to Apple as a teacher, given the enormous spillover benefit that Apple’s operations have had on tech development in China.

But some “patriots” in China do not seem to understand this. Instead, they believe Beijing should demonstrate its strength by going after the US firm, which is a symbol of American technological might.

For Apple, the costs would admittedly be huge if it becomes a pawn in the Sino-US trade war and faces a clampdown from Beijing.  

Goldman Sachs estimated in a note that Apple could lose 29 percent of its profits if China decides to ban Apple sales in the country to retaliate against Washington’s Huawei ban. Currently, around 17 percent of Apple’s sales come from China, so any ban would undoubtedly hurt the firm’s earnings.

But it is just a theoretical scenario and the chances of that actually happening are little.

Chinese media may give play to calls of “patriotic” citizens amid the trade war, but Beijing is unlikely to act on radical suggestions, such as a ban on Apple sales or curbs on the firm’s manufacturing operations. 

It would be foolish for Beijing to make Apple a target in a counter move against Washington, given that China is a key manufacturing base for all Apple products.

Apple’s contract maker Foxconn, which has been in China for more than three decades, is one of the major employers in the country, with hundreds of thousands of Chinese workers on its payrolls.

As Apple is one of the key customers, any ban on Apple products would mean a whole lot of Foxconn workers losing their jobs.

Also, we should remember that independent software developers in China reap profit from participating in the Apple ecosystem and drawing on the huge iPhone user base in China.

According to Apple, China software developers have received 110 billion yuan from its App Store. And millions of jobs have been created as developers leverage the iOS ecosystem for various business initiatives. Given all this, any ban on Apple will be a counter-productive for China.

Apple has pointed out that it contributes to China’s economic and social development in various ways. Creating a wide range of quality jobs is a very important part of it, the iPhone maker said, claiming that it brought more than 3 million jobs through supply chain, procurement and investment in China.

For the fiscal quarter ended March, Apple’s revenue from the Greater China region stood at US$10.2 billion. iPhone market share was 7.4 percent, with an estimated shipment of 6.5 million units. The company also operates more than 40 stores across the nation.

Given the scope and scale of its operation in China and its contributions to the economy, Apple can be considered by Beijing as a Chinese entity itself, rather than labeled as just a US enterprise.

Amid this situation, does the iPhone maker really have any cause for worry? 

– Contact us at [email protected]

RC

EJ Insight writer