‘Apple in China’

When I watched Tim Cook, in the White House, carefully assemble a glass-and-gold trophy fit for a king, it felt to me like a natural outcome of the events and actions exhaustively documented by Patrick McGee in “Apple in China”. It was a reflection of the arc of Cook’s career, and of Apple’s turnaround from dire straits to a kind of supranational superpower. It was a consequence of two of the world’s most powerful nations sliding toward the (even more) authoritarian, and a product of appeasement to strongmen on both sides of the Pacific.

At the heart of that media spectacle was an announcement by Apple of $100 billion in domestic manufacturing investment over four years, in addition to its existing $500 billion promise. This is an extraordinary amount of money to spend in the country from which Apple has extricated its manufacturing over the past twenty years. The message from Cook was “we’re going to keep building technologies at the heart of our products right here in America because we’re a proud American company and we believe deeply in the promise of this great nation”. But what becomes clear after digesting McGee’s book is that core Apple manufacturing is assuredly not returning to the United States.

Do not get me wrong: there is much to be admired in the complementary goals of reducing China-based manufacturing and an increasing U.S. role. Strip away for a minute the context of this president and his corrupt priorities. Rich nations have become dependent on people in poorer nations to make our stuff, and no nation is as critical to our global stuff supply than China. One of the benefits of global trade is that it can smooth local rockiness; a bad harvest season no longer has to mean a shortage of food. Yet even if we ignore their unique political environment and their detestable treatment of Uyghur peoples — among many domestic human rights abuses — it makes little sense for us to be so dependent on this one country. This is basically an antitrust problem.

At the same time, it sure would be nice if we made more of the stuff we buy closer to where we live. We have grown accustomed to externalizing the negative consequences of making all this stuff. Factories exist somewhere else, so the resources they consume and the pollution they create is of little concern to us. They are usually not staffed by a brand we know, and tasks may be subcontracted, so there is often sufficient plausible deniability vis a vis working conditions and labour standards. As McGee documents, activist campaigns had a brief period of limited success in pressuring Apple to reform its standards and crack down on misbehaviour before the pressure of product delivery caught up with the company and it stopped reporting its regressing numbers. Also, it is not as though Apple could truly avoid knowing the conditions at these factories when there are so many of its own employees working side-by-side with Foxconn.

All the work done by people in factories far away from where I live is, frankly, astonishing. Some people still erroneously believe the country of origin is an indicator of whether a product is made with any degree of finesse or care. This is simply untrue, and it has been for decades, as McGee emphasizes. This book is worth reading for this perspective alone. The goods made in China today are among the most precise and well-crafted anywhere, on a simply unbelievable scale. In fact, it is this very ability to produce so much great stuff so quickly that has tied Apple ever tighter to China, argues McGee:

Whereas smartphone rivals like Samsung could bolt a bunch of off-the-shelf components together and make a handset, Apple’s strategy required it to become ever more wedded to the industrial clusters forming around its production. As more of that work took place in China, with no other nation developing the same skills, Apple was growing dependent on the very capabilities it had created. (page 176)

Cook’s White House announcement, for all its patriotic fervour, only underscores this dependency. In the book’s introduction, McGee reports “Apple’s investments in China reached $55 billion per year by 2015, an astronomical figure that doesn’t include the costs of components in Apple hardware” (page 7). That sum built out a complete, nimble, and precise supply chain at vast scale. By contrast, Apple says it is contributing a total of $600 billion over four years, or $150 billion per year. In other words, it is investing about three times as much in the U.S. compared to China and getting far less. Important stuff, to be sure, but less. And, yes, Apple is moving some iPhone production out of China, but not to the U.S. — something like 18% of iPhones are now made in India. McGee’s sources are skeptical of the company’s ability to do so at scale given the organization of the supply chain and the political positioning of its contract manufacturers, but nobody involved thinks Apple is going to have a U.S. iPhone factory.

So much of this story is about the iPhone, and it can be difficult to remember Apple makes a lot of other products. To McGee’s credit, he spends the first two-and-a-half sections of this six-part book exploring Apple’s history, the complex production of the G3 and G4 iMacs, and the making of the iPod which laid the groundwork for the iPhone. But a majority of the rest of the book is about the iPhone. That is unsurprising.

First, the iPhone is the product of a staggering amount of manufacturing knowledge. It is also, of course, a sales bonanza.

In fact, among the most riveting stories in the book do not concern manufacturing at all. McGee writes of grey market iPhone sales — a side effect of which was the implementation of parts pairing and activation — and the early frenzy over the iPad. Most notably, McGee spends a couple of chapters — particularly “5 Alarm Fire” — dissecting the sub-par launch sales of the iPhone XR as revealed through executive emails and depositions after Apple was sued for allegedly misleading shareholders. The case was settled last year for $490 million without Apple admitting wrongdoing. Despite some of these documents becoming public in 2022, it seems nobody before McGee took the time to read through them. I am glad he did because it is revealing. Even pointing to the existence of these documents offers a fascinating glimpse of what Apple does when a product is selling poorly.

Frustratingly, McGee does not attribute specific claims or quotations to individual documents in this chapter. Virtually everything in “5 Alarm Fire” is cited simply to the case number, so you have to go poking around yourself if you wish to validate his claims or learn more about the story.¹ It may be worthwhile, however, since it underscores the unique risk Apple takes by releasing just a few new iPhones each year. If a model is not particularly successful, Apple is not going to quietly drop it and replace it with a different SKU. With the 2018 iPhones, Apple was rocked by a bunch of different problems, most notably the decent but uninteresting iPhone XR — 79% fewer preorders (PDF) when compared to the same sales channels as the iPhone 8 and 8 Plus — and the more exciting new phones from Huawei and Xiaomi released around the same time. Apple had hoped the 2018 iPhones would be more interesting to the Chinese market since they supported dual SIMs (PDF) and the iPhone XS came in gold. Apple responded to weak initial demand with targeted promotions, increasing production of the year-old iPhone X, and more marketing, but this was not enough and the company had to lower its revenue expectations for the quarter.

That Cook called this “obviously a disaster” is, of course, a relative term, as is the way I framed this as a “risk” of Apple’s smartphone release strategy. Apple still sold millions of iPhones — even the XR — and it still made a massive amount of money. It is a unique story, however, as it is one of the few times in the book where Apple has a problem of making too many products rather than too few. It is also illustrative of increasing competition from Chinese brands and, as emails reveal (PDF), trade tensions between the U.S. and China.

The fundamental heart of the story of this book is of the tension of a “proud American company” attempting to appease two increasingly nationalist and hostile governments. McGee examines Apple’s billion-dollar investment in Didi Chuxing, and mentions Cook’s appointment to the board of Tsinghua University School of Economics and Management. This is all part of the politicking the company realized it would need to do to appease President Xi. Similarly, its massive spending in China needed to be framed correctly. For example, in 2016, it said it was investing $275 billion in China over the following five years:

As mind-bogglingly large as its $275 billion investment was, it was not really a quid pro quo. The number didn’t represent any concession on Apple’s part. It was just the $55 billion the company estimated it’d invested for 2015, multiplied by five years. […] What was new, in other words, wasn’t Apple’s investment, but its marketing of the investment. China was accumulating reams of specialized knowledge from Apple, but Beijing didn’t know this because Apple had been so secretive. From this meeting forward, the days in which Apple failed to score any political points from its investments in the country were over. It was learning to speak the local language.

One can see a similar dynamic in the press releases for U.S. investments it began publishing one year later, after Donald Trump first took office. Like Xi, Trump was eager to bend Apple to his administration’s priorities. Some of the company’s actions and investments are probably the same as those it would have made anyhow, but it is important to these autocrat types that they believe they are calling the shots.

Among the reasons the U.S. has given for taking a more hostile trade position on China is its alleged and, in some cases, proven theft of intellectual property. McGee spends less time on this — in part, I imagine, because it is a hackneyed theme frequently used only to treat innovation by Chinese companies with suspicion and contempt. This book is a more levelheaded piece of analysis. Instead of having the de rigueur chapter or two dedicated to intellectual property leaving through the back door, McGee examines the less-reported front-door access points. Companies are pressured to participate in “joint ventures” with Chinese businesses to retain access to markets, for example; this is why iCloud in China is operated not by Apple, but by AIPO Cloud (Guizhou) Technology Co. Ltd.

Even though patent and design disputes are not an area of focus for McGee, it is part of the two countries’ disagreements over trade, and one area where Apple is again stuck in the middle. A concluding anecdote in the book references the launch of the Huawei Mate XT, a phone that folds in three which, to McGee, “appears to be a marvel of industrial engineering”:²

It was only in 2014 that Jony Ive complained of cheap Chinese phones and their brazen “theft” of his designs; it was 2018 when Cupertino expressed shock at Chinese brands’ ability to match the newest features; now, a Chinese brand is designing, manufacturing, and shipping more expensive phones with alluring features that, according to analysts, Apple isn’t expected to match until 2027. No wonder the most liked comment on a YouTube unboxing video of the Mate XT is, “Now you know why USA banned Huawei.” (pages 377–378)

The Mate XT was introduced the same day as the iPhone 16 line, and the differences could not have been more stark. The iPhone was a modest evolution of the company’s industrial design language, yet would be familiar to someone who had been asleep for the preceding fifteen years. The Mate XT was anything but. The phones also had something in common: displays made by BOE. The company is one of several suppliers for the iPhone, and it enables the radical design of Huawei’s phone. But according to Samsung, BOE’s ability to make OLED and flexible displays depends on technology stolen from them. The U.S. International Trade Commission agreed and will issue a final ruling in November which is likely to prohibit U.S. imports of BOE-made displays. It seems like this will be yet another point of tension between the U.S. and China, and another thing Cook can mention during his next White House visit.

“Apple in China” is, as you can imagine, dense. I have barely made a dent in exploring it here. It is about four hundred pages and not a single one is wasted. This is not one of those typical books about Apple; there is little in here you have read before. It answers a bunch of questions I have had and serves as a way to decode Apple’s actions for the past ten years and, I think, during this second Trump presidency.

At the same time, it leaves me asking questions I did not fully consider before. I have long assumed Apple’s willingness to comply with the demands of the Chinese government are due to its supply chain and manufacturing role. That is certainly true, but I also imagine the country’s sizeable purchasing power is playing an increasing role. That is, even if Apple decentralizes its supply chain — unlikely, if McGee’s sources are to be believed — it is perhaps too large and too alluring a market for Apple to ignore. Then again, it arguably created this problem itself. Its investments in China have been so large and, McGee argues, so impactful they can be considered in the same context as the U.S.’ post-World War II European recovery efforts. Also, the design of Apple’s ecosystem is such that it can be so deferential. If the Chinese government does not want people in its country using an app, the centralized App Store means it can be yanked away.³

Cook has previously advocated for expressing social values as a corporate principle. In 2017, he said, perhaps paraphrasing his heroes Martin Luther King Jr. and John Lewis, “if you see something going on that’s not right, the most powerful form of consent is to say nothing”. But how does Cook stand firmly for those values while depending on an authoritarian country for Apple’s hardware, and trying to appease a wanna-be dictator for the good standing of his business? In short, he does not. In long, well, it is this book.

It is this tension — ably shown by McGee in specific actions and stories rather than merely written about — that elevates “Apple in China” above the typical books about Apple and its executives. It is part of the story of how Apple became massive, how an operations team became so influential, and how the seemingly dowdy business of supply chains in China applied increasingly brilliant skills and became such a valuable asset in worldwide manufacturing. And it all leads directly to Tim Cook standing between Donald Trump and J.D. Vance in the White House, using the same autocrat handling skills he has practiced for years. Few people or businesses come out of this story looking good. Some look worse than others.