Apple's balancing act in China gets trickier amid Beijing's tech crackdown

Chinese President Xi Jinping's campaign against Big Tech threatens a delicate balance Apple has cultivated in China.
Chinese President Xi Jinping's campaign against Big Tech threatens a delicate balance Apple has cultivated in China.PHOTO: AFP

TOKYO (BLOOMBERG) - In less than a year, China has upended the world's largest Internet sphere, throwing its biggest players from Alibaba to Tencent into a tailspin with a storm of regulatory measures to loosen their stranglehold over data and content. Yet Apple, the largest of them all and an American icon, has sailed through mostly unscathed.

That may be changing. President Xi Jinping has over the past year launched a broad offensive against Big Tech, directing the dismantling of digital walls around platforms like WeChat that stifle competition. Last month, China's top court effectively granted consumers the right to sue Apple for alleged abuse of market power - a setback for a company whose App Store pioneered the walled-garden model of centralising user data and publishing control.

Mr Xi's campaign threatens a delicate balance Apple has cultivated in China, a market that underpins much of its US$2.4 trillion (S$3.3 trillion) value as both the foremost producer and one of the biggest consumers of iPhones. Apple is among the most profitable American players in China, a country that's shut out rivals from Alphabet's Google to Facebook, navigating between Beijing's increasingly rigid demands and anti-China sentiment back home.

Regulators have thus far focused on whittling down the influence of China's biggest tech firms, fearing their immense and growing influence could pose a long-term threat to the Communist Party. But the powers-that-be have never been shy about going after American interests, and tensions with the US are running high.

"It just needed to play differently to adapt to the Chinese market conditions," said Ms Nicole Peng, vice-president of mobility research at Canalys, referring to Apple. "It will need to be really careful not to fall into any kind of monopoly activities. That's something the Chinese government will be closely watching."

Added scrutiny from Beijing would introduce another major element of uncertainty for a company already grappling with supply chain system shocks. Apple is slashing its projected iPhone 13 production target for 2021 by as many as 10 million units as its suppliers struggle to secure enough components, people familiar with the matter said this week.

For now, the world's most valuable company is seeing its software operations thriving in China. The iPhone's App Store - over which the company exerts almost total control and collects a typical 30 per cent cut from all payments - is the quintessential closed ecosystem. Epic Games this year sued Apple for monopolistic behaviour, blowing the lid off a longstanding complaint of developers the world over: that the iOS model squeezes creators unfairly with its so-called Apple tax. South Korea in August passed a law compelling Apple and Google to open their mobile stores to different payment options. US lawmakers are urging similar measures.

China's Supreme Court in September gave the green light to a case filed by an individual consumer alleging Apple's app fees are unfair, allowing it and similar lawsuits to proceed. Apple declined to comment on the decision or for this article. The company says the App Store fees it charges are justified by the security and peace of mind it provides users, while giving developers a global showcase for their apps.

It's hard to overstate Apple's reliance on China, where partners like Foxconn make most of the world's iPhones and a consumer market that yields about a fifth of its US$275 billion in annual revenue. The local App Store has generated more revenue than its US equivalent in four of the past five years. Consumer spending on the iOS platform surpassed US$9.1 billion in China during the first half of 2021 alone, up 25 per cent on the previous year, according to App Annie.

The country's Internet population rose above one billion this year and it is already the world's biggest gaming arena and electric-vehicle market, making it essential to Apple's present and future ambitions.

That's partly why Apple makes sure to stay on Beijing's good side. It runs a series of social and education programmes, employs millions across its supply chain and grants coveted contracts to Chinese firms like Luxshare Precision Industry and BOE Technology Group . It lets a state-backed firm handle all its local data and complies with censorship requests. That has helped shield it from the broader assault on tech giants, observers say.