Why Apple isn’t a big market for China: Why the Chinese government is trying to make a break from the middle-income trap

In the absence of elections, Communist Party officials in China rise up the ranks based on how well they deliver on the party’s priorities, at least in theory. For years, the top priority was economic growth. Local officials plowed money into the highways, ports and power plants that manufacturers needed, turning China into the world’s factory. The use of industrialrobots is part of the Chinese government’s effort to break out of the middle-income trap and become self-sufficient.

In early November, weeks before the peak holiday shopping season was about to kick off, Apple issued an unusual warning: customers would have to wait longer for the new iPhone 14 Pro models. That’s because one of its key assembly facilities in the Chinese city of Zhengzhou was “operating at significantly reduced capacity” due to Covid curbs.

Another key element to why Apple “is really reluctant to rock the boat with China is that China is also a massive market for Apple,” according to Wharton’s Allon. Nearly 20% of its global sales were in the Greater China market during the year ending in September.

Apple had the opportunity to grow last year, but not before 2025, as China did in the 1970s and 1980s, according to Allon

Gad Allon, a professor at the University of Pennsylvania’s Wharton School whose research focuses on operations and supply chain management, appeared to have an even more conservative assessment of the timetable. “I don’t think we can talk about any meaningful change beyond a few percent before 2025,” Allon said.

Ultimately, Apple is “in some ways as much a Chinese company as it is an American company,” Friedman said, “although, of course, it is headquartered in the States.”

There are a range of crucial factors that go into assembling and producing iPhones, for example, “that just can’t be replicated in other countries,” he said. This includes availability of materials and components from nearby suppliers; world-class infrastructure that is already in place at scale; access to a large labor force of engineers as well as low labor costs; and availability of the swaths of land necessary to build the factory-cities that can house hundreds of thousands of workers as well as the sprawling production facilities.

Jobs brought up the labor issue at the October meeting with the president. He called America’s lackluster education system an obstacle for Apple, which needed 30,000 industrial engineers to support its on-site factory workers at the time.

Jobs told the president that they couldn’t hire many people in America. More manufacturing plants would be moved here if you could educate the engineers.

China is aiming for 5% economic growth this year and will take steps to bring about a rebound after stalling last year, according to outgoing premier Li Keqiang.

Before the Omicron variant began to challenge the government’s zero COVID policy, the target was lower than last year’s.

Official statistics show that the economy grew just 3% last year — among the slowest rates since market reforms began after Chairman Mao Zedong died in the late 1970s — although some economists suspect the growth rate may actually have been lower.

The State of the Union Addressing Taiwan’s “Complex Security Challenges,” said Li during the Opening Ceremony of the National People’s Congress

“This year, it is essential to prioritize economic stability and pursue progress while ensuring stability. Policies should be kept consistent and targeted, and they should be carried out in a more coordinated way to create synergy for high quality development,” Li said at the opening ceremony of an annual series of meetings of the country’s parliament, the National People’s Congress.

The meetings, involving about 3,000 delegates from across the country, are a chance to review the year’s achievements and preview upcoming legislative proposals, though delegates rarely cast dissenting votes.

But for the past two decades, China’s military budget has been steadily increasing, first at a double digit pace until 2016 before dipping down to around 6% to 7% increases annually. The country has begun an ambitious military modernization project that will reorganize its fighting forces and invest in defense technologies.

China’s parliamentary spokesperson Wang Chao told reporters this weekend that the budget increase this year was quote “relatively moderate and reasonable” and a response to the “complex security challenges” in the world.”

Li said that Beijing prefers to “unify” Taiwan with the island peacefully rather than resorting to force.

We must continue to implement the Party’s overall strategy for resolving the Taiwan issue. Promoting economic and cultural exchanges are necessary between the two sides of the strait.

For the most part, Li’s speech — a kind of “state of the union” delivered to the National People’s Congress — focused heavily on the economy, an area of policy that he has nominally been in charge of since 2013.

It has hurt sectors of the economy, such as tech, education, real estate and others, that the government has imposed a series of harsh policies, such as “zero carbon dioxide” and “zero health care costs”, that have hurt market confidence.

Chinese President Xi Qiang at the China Development Forum: Business Confidence and the Establishment of China’s Throat

Analysts say that the authority of Li has been eroded by the Chinese leader who was more involved in the economy than his predecessors. Li is set to retire in about a week when parliament picks a new premier.

Xi ally Li Qiang, a former Communist Party boss in Shanghai and neighboring coastal provinces, is widely expected to get the job, in an appointment that many see as part of Xi’s efforts to consolidate his grip on power as he embarks on a rare third term as state president. The two Lis aren’t related.

In his speech on Sunday, Li Keqiang repeated calls for the government to prioritize the expansion of domestic demand, something that economists say is necessary to push China’s economy beyond its reliance on investment.

China’s new premier, Li Qiang, has offered a hearty welcome to foreign companies in an effort to arrest a slump in business confidence that has exacerbated the country’s economic woes.

Apple’s Tim Cook was among a group of global CEOs met by Li at the China Development Forum in Beijing on Monday.

“China will open its door wider and wider,” he told the executives, according to state broadcaster CCTV, urging them to “invest in China and take root in China.”

Li pledged that the country will align with international economic and trade rules, give equal treatment to foreign investment and facilitate trade and investment by removing government controls.

Participants at the forum, which was held from Saturday to Monday, included Samsung Chairman Lee Jae-yong, Pfizer CEO Albert Bourla, Bridgewater founder Ray Dalio, Blackstone CEO Stephen Schwarzman, Alliance Group CEO Oliver Bäte, Rio Tinto CEO Jakob Stausholm and Hitachi CEO Toshiaki Higashihara.

The Return of China after 30 Years: How the Chinese Economy and Private Business Have Impacted the Industrial Revolution in the United States and the Emerging Middle East

Cook spoke at a panel discussion on Saturday, saying he was happy to be back as the company celebrated its 30th year in the country, according to state media. This is his first trip to China since 2019.

But the problems have been exacerbated by the Communist Party’s erratic and draconian zero-Covid policy, which ended late last year, and a sweeping crackdown on private business.

The measures have resulted in weak business confidence, a slump in investment and surging unemployment. The youth unemployment rate hit 18% last month.

Foxconn, Apple’s biggest contractor, said last month it had secured a new site in Vietnam to expand production in the Southeast Asian country, according to the company.

For the first time in 25 years, the American Chamber of Commerce in China found in its annual survey of members that fewer than half of the respondents regarded China as one of their top three investment destinations.

The ministry stated Wang met with the CEOs and chairs from companies such as Swire Group, BMW and Mercedes-Benz.

Earlier this month, the ministry announced that for the first time, it would launch an “Invest in China Year” in 2023 to encourage foreign companies to set up shop.