“Apple in China,” by Patrick McGee, tells the gripping tale of how the computer giant’s decades-long investment in China fueled its spectacular success and, in turn, accelerated China’s rise as a technology superpower.
This story begins nearly 30 years ago. After returning to Apple in 1997, co-founder Steve Jobs needed a hit product and a way to build it at scale. The iMac was Jobs’ comeback hit. But it was quirky and tricky to assemble. Apple was able to get the iMac launched with the help of Korea’s LG, but early production problems and increasing consumer demand had them looking for a second producer.
At the time, China’s completive advantage was its “low wages, low welfare, low human rights” according to China scholar Qin Hui.
That began to change in the 1990s. It was Taiwanese entrepreneurs such as Terry Gou, the charismatic and ruthless cost-cutting CEO and founder of Foxconn, who turned China into a high tech workshop capable of awesome feats of production — and eventually innovation.
Apple had seemingly landed on a winning formula: pairing the signature innovation and design personified by the late Steve Jobs, with China’s vast production capacity, overseen by now-CEO Tim Cook, the architect of Apple’s China strategy.
Yet despite Apple and Cook’s extraordinary success in China, “Apple in China” is ultimately a cautionary tale. The book describes how hubris and a lack of foresight bordering on wilful blindness to geopolitical realities can eventually pose huge, existential risks to any company.
Apple’s massive investment in China is beginning to look like a Faustian bargain. As Apple entrenched itself in the nation, it became beholden to the Communist Party and eventually became the junior partner in China’s decades long effort to gain technology superiority over the United States through knowledge transfer and best practices.
“China allowed Apple to exploit its workers, so that China can, in turn, exploit Apple,” says McGee, a former Financial Times reporter who covered the company for nearly five years. As Apple benefited from China, China parlayed the company’s historic investments into a great technological leap forward for itself.
From the start, Apple has embedded its top people and invested significantly in scaling its complex Chinese supply chain. For example, in 2015, Apple committed to spending $275 billion in China over five years, more than double what the US spent on the Marshall Plan to rebuild Europe, adjusted for inflation. Over the decades, Apple estimates it has trained 28 million workers, more than California’s entire labor force. These are nation-building efforts, says McGee.
Apple’s success, fueled in part by its huge embrace by Chinese consumers, began to strain local labor markets, forcing the company and its suppliers to build more operations inland in cities like Chengdu. These investments were also aimed at pleasing the Chinese Communist Party bosses in Beijing and their new leader Xi Jinping, who wanted the interior to enjoy the same prosperity as coastal cities.
Apple was notoriously tough on its suppliers. One executive, Tony Blevins, once forced a manufacturer to sign a contract without reading it and was known for making and breaking companies. But the opportunity to work with Apple kept everyone coming back. And it paid off spectacularly for the firms who worked with Apple — and survived.
Indeed, Apple’s China strategy spawned a huge ecosystem of technology companies, including brands like electric carmaker BYD, which began as an Apple contractor assembling iPads, and is now building cutting-edge electric cars. In other words, “China brilliantly played its long-term interests against Apple’s short-term needs,” says McGee.
Around the time Xi came to power, Apple began to get serious about government relations in China, bringing in top executives to manage their operation in the Middle Kingdom. Known as “The Gang of Eight,” this team included Doug Guthrie, a China expert, who according to McGee was “the most instrumental character in Apple’s political awakening.”
Guthrie, initially a China bull, eventually realized Xi’s so-called reform program was “meant to lure in capital and Western businesses as a way of learning, so China could reverse-engineer the technology, replicate it and then replace it.”
Despite these risks, China’s authoritarian turn under Xi helped Apple, by squashing the nascent labor movement, allowing the company’s contractors to extract more from their workers and ultimately boost margins on iPhones and other products.
Apple faced a new risk in 2016 with the election of Donald Trump, a China hawk. In McGee’s telling, Tim Cook deftly handles the new president, visiting and calling him frequently. In fact, rather than hurting Apple, Trump’s first-term China policy (which included Tariffs on China) was a boon to the company: Trump imposed harsh sanctions on Huawei, Apple’s main Chinese rival, allowing it to recapture market share it had lost to Huawei in China and reap billions in profits.
In 2020, COVID struck China, and the rest of the world went into lockdown. But within months, Chinese factories reopened, churning out iPhones and iPads at a record clip. But in 2022, after an anti-government protest was violently quashed, Apple finally, belatedly, realized that its China exposure was too great.
McGee reserves some of his most pointed criticism for America’s policy elite.
“At the turn of the Millennium, Washington made a bet on China — a bet that free trade would liberalize the country and perhaps catalyze the creation of the world’s biggest democracy,” says McGee. But rather than ushering in democracy, trade with China only enriched and entrenched China’s ruling elite. McGee offers this damning critique: “Xi’s actions made Washington’s hopes from two decades earlier — that it could export democracy through capitalism — look almost willfully naïve.”
Today, Apple is scrambling to diversify its supply chain. In 2022, following the Shanghai lockdowns, Apple greenlit a plan to boost manufacturing in India, also a huge consumer market. But a full ‘decoupling’ from China would require hundreds of billions of dollars of investment and decades to implement.
Furthermore, India lacks China’s powerful central government which can redirect workers into factories. And it lacks the ecosystem of high tech suppliers — most of whom are still in China. Plus, in India, there are labor unions!
So where does Apple go from here? Taiwan, and contract manufacturer TSMC, are emerging as a new risk. “Today, the main ‘system on a chip’ in every iPhone, iPad, MacBook, desktop Mac, AirPod and Apple Watch is being made on one small island” — Taiwan — which Xi has threatened to annex. A war or even an embargo of Taiwan would completely cripple Apple. Warren Buffet recently sold his $5 billion TSMC position because of China risk, and heavily cut his Apple exposure, McGee believes for the same reason.
There are other risks. Huawei, an Apple competitor that benefited from Apple’s decades long China strategy, is leapfrogging Apple in design and technology. Decoupling from China could cause a backlash from Chinese consumers and Beijing. And then there’s Trump and his continually shifting tariff strategy, yet another source of uncertainty.
McGee ends by asking, how did China do it? How did they grow so quickly? “Some portion of the disquieting answer is that Apple taught them,” he says. There’s Apple DNA everywhere.
Alex Tapscott is the author of “Web3: Charting the Internet’s Next Economic and Cultural Frontier” and managing director of the Digital Asset Group, a division of Ninepoint Partners LP.
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