It’s not just handset design that Chinese tech companies seem keen to “borrow” from Apple. According to a fascinating new report, a growing number of Chinese companies are copying Apple’s “balance-sheet strategy” by issuing debt as a way to increase their return on equity and hand money back to shareholders.
As Bloomberg notes:
“With many publicly traded in the U.S. or Hong Kong, they’ve found borrowing abroad a great way to raise funds and boost returns. Another boon, they don’t have to beg authorities in Beijing for permission to move capital around.”
One such company is Baidu, China’s biggest search engine, which has reportedly doubled the size of a five-year loan to $2 billion, taking the amount that companies in China have raised through banks and international bonds to $28 billion since the last quarter of 2014. During that same period, stock buybacks totaled $10 billion.
Apple has been pursuing its innovative financial strategy for the past several years, raising enormous amounts of debt to pay off investors, rather than having to dip into its gigantic offshore cash pile to pay for its expanded buyback program. As an example of how much this can mean in real world terms, back in 2013 Apple saved a $9.2 billion tax bill thanks to low-interest rates making it more sensible to borrow than to repatriate its own money.
It just goes to show that the sharp minds at Apple aren’t just the visible folks standing on-stage introducing us to the latest iPhones!
Luke Dormehl is a U.K.-based journalist and author, with a background working in documentary film for Channel 4 and the BBC. He is the author of The Apple Revolution and The Formula: How Algorithms Solve All Our Problems … and Create More, both published by Penguin/Random House. His tech writing has also appeared in Wired, Fast Company, Techmeme and other publications.
3 responses to “Design isn’t the only thing China’s copying from Apple”
For uneducated financial neophytes, how do we explain this in simple terms? The company borrows national debt from the government to pay out to their shareholders, then pays back the government at a lower interest rate? And this works out cheaper for them?
Yup, I’d love to know how taking on massive debt is a good thing for anybody.
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