How Long Will China Let Apple Keep On Profiting In China?

How Long Will China Let Apple Keep On Profiting In China?

This week’s TIME Magazine cover story is called “The Cult of Apple in China.” On newsstands tomorrow, it’s an in-depth look at how Apple thrives in China.

The article’s author, Hannah Beech, writes: “The American company is thriving in China, even as other Western tech firms struggle with local competition and communications restrictions imposed by the authoritarian state. Apple products now serve as the ultimate totem of upward mobility in a country with a fast-growing middle class.”

That all sounds rosy, but as Beech makes clear, the future is far for certain as Apple, as the government of China increasingly becomes nationalistic. How long will they allow Apple to profit so handsomely within China without starting to try to take a bigger piece of the pie?

Here’s an excerpt of the cover story:

Apple symbolizes the best of American Big Business—its innovative drive, its stylish flair, its advertising acumen. The company has also succeeded because of its deep and complex relationship with a country halfway around the world, where nearly all its gadgets are assembled. Labor violations within the tech firm’s China supply chain—Apple has no factories of its own and instead contracts assembly out to a vast supplier network—have grabbed headlines in recent months.

But the supply-side problems are only part of the Apple story. The American company is thriving in China, even as other Western tech firms struggle with local competition and communications restrictions imposed by the authoritarian state. Apple products now serve as the ultimate totem of upward mobility in a country with a fast-growing middle class. “There’s tremendous opportunity for companies that understand China, and we are doing everything we can to understand it,” said Timothy Cook, Apple’s chief executive, during an April earnings conference call. “It was an incredible quarter [for Apple] in China. It is mind-boggling that we could do this well.”

Apple’s relationship with the People’s Republic embodies some of the global economy’s brightest opportunities but also its thorniest dilemmas. An American tech giant must decide how much to adapt its practices in a faraway land. Should Apple represent the best of the West in the Middle Kingdom, or must it conform to the less salubrious way China Inc. operates? From China’s side, how much longer will an increasingly nationalistic government allow foreign companies like Apple to profit so handsomely on its shores? Caught in the middle are 1.3 billion Chinese whose toil in factories and taste for luxury products will dictate the future of the world’s marketplace.

The issue of TIME featuring this cover story will hit newsstands tomorrow. In the meantime, TIME Magazine subscribers can read the story in its entirety at the link below.

  • NeverEndsWell

    ” Should Apple represent the best of the West in the Middle Kingdom, or must it conform to the less salubrious way China Inc. operates? …Caught in the middle are 1.3 billion Chinese whose toil in factories and taste for luxury products will dictate the future of the world’s marketplace.”

    Good grief. Another hit piece about Apple. Let me guess, the journalists at the NYT that did the erroneous report on Apple a few weeks ago have now moved to Time? Where is any mention of Google’s Android phones or Microsoft’s Windows Phones, both of which are supposedly selling very well in China (and some reports reflecting greater sales than the iPhone)? Bad enough Apple is barred from selling the iPad in most of the country due to a bogus infringement and just a veiled shakedown.

  • gprovida

    If you sell a $500 computer how much of value, profit, is in the parts. I would argue MS, Intel, and maybe SSD manufacturers make most of the profit while the assembler, OEMS is making marginal profits.

    So for Apple it makes significant profit on sales of a $500 item directly, but others selectively do well in the value chain e.g., SSD manufactuers. This may provide a clue why Apple pays so much attention to the supplier chain and builds its own chips and software.

    Regarding assembly and some parts built in China, China is creating a mega-assembly and soon parts capability, e.g., Sharp investment. Since China has always been ultra-nationalistic, they see their near term targets as the supply chain and their primary competitor as Korea and Samsung. This extends way beyond Apple products, e.g., their are gunning to displace Kia and Hundai who are gunning for Toyota and Honda.

    If they succeed ( India is the wild card) then Apple at the high end of the value chain becomes a target. Our and Times obsession with Apple are really missing the big picture, sort of blinded by the glitter.

  • MrPeabody

    I guess Apple et. al. will continue as-is as long as China continues to have direct access to American debt. What’s the big deal? Nothing’s free. They have access and the U.S. has access – no big mystery.

About the author

John BrownleeJohn Brownlee is a Contributing Editor. He has also written for Wired, Playboy, Boing Boing, Popular Mechanics, VentureBeat, and Gizmodo. He lives in Boston with his wife and two parakeets. You can follow him here on Twitter.

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