Chinese state media recently suggested that U.S. firms including Apple could have their success in China hampered by “rounds of endless investigations” after the White House imposed sanctions on Chinese smartphone maker Huawei. But expert voices suggest China’s bark may be worse than its bite in this case.
“China is already facing headwinds as companies such as Apple look to diversify their manufacturing base,” Neil Shah, research director at Counterpoint Research, told CNBC. “So it could be a double whammy if China targets Apple in China and indirectly Foxconn. It would further accelerate the manufacturing to outside of China.”
Shah added that Apple makes a “huge direct and indirect contribution” to China’s economy. This is not only as a seller of products but also through its manufacturing supply chain. “Beijing will have to think twice before targeting Apple,” Shah noted.
Meanwhile, Paul Triolo, head of Eurasia Group’s geotechnology practice, said he was skeptical that China would go after Apple. “There could be some brand boycott efforts, but not major moves against high profile companies like Apple that have very good relationships with local governments and Beijing,” Triolo told CNBC.
China and the U.S. clash leaves Apple in the middle
China and the U.S. have clashed multiple times during Trump’s presidency. Reasons have included import tariffs and, more recently, China’s handling of coronavirus. Last Friday, the U.S. made an effort to sever chip supplies to Huawei. The rule means that foreign firms which use American software or equipment in their manufacturing must obtain a license to sell to Huawei. This could have a big impact on Huawei’s supply of much-needed components and semiconductors.
As tensions between the U.S. and China have deepened, Apple has had a narrow line to walk. Tim Cook has made no secret of how he believes China is Apple’s biggest market. As noted, the company also relies on China for making a lot of its products. But doing business in China comes with strings attached — such as when Apple had to agree to migrate local iCloud accounts to a China-based server or remove the Taiwanese flag from its keyboard.
If Apple was placed on China’s “unreliable entity list,” it could cause major headaches for the company. This, in turn, would have a noticeable negative impact on Apple earnings and share price.