Apple in China
The subtitle of this book by Patrick McGee is The Capture of the World’s Greatest Company. This is an important book and one you should really consider reading.
The book tells the untold story of how Apple used China as a manufacturing base and inadvertently made themselves completely dependent on an authoritarian state that is America’s greatest enemy. China allowed Apple to exploit Chinese workers so that China can exploit Apple.
It’s a complicated story, but the author does a masterful job explaining how it happened.
The problem for Apple is that no other country can provide the cost, efficiencies and scale that China can. Apple has trained over 28 million Chinese workers in state-of-the-art manufacturing processes. Processes that can be used in other industries, such as the production of high-tech war materials. Plus, Apple’s investment in capital goods to place in Chinese factories reached $55 billion per year in 2015. The total makes the post-war Marshall Plan look paltry. Apple has trained a whole country, and now that country is using it against the U.S.
Apple is certainly aware of the quandary they find themselves in. They are making efforts to diversify their supple chain, but it is almost impossible. Early attempts to set up another supply chain in India aren’t working and aren’t likely to work.
Apple didn’t outsource production to China in the conventional sense. Instead, it sent the best production engineers in the world to its subcontractors to train them in techniques that weren’t done anywhere else. Apple placed special machines that Apple owned in the factories. In fact, Apple was buying more machine tools than anyone else. The Chinese tech competence that they now have, was built by Apple.
The great irony that the author points out, is that the largest communist country in the world is also the most dynamic capitalist economy in the world. But it is also a regionally decentralized authoritarian regime.
Apple made a fatal assumption, but so did everyone else, including the U.S. government. That mistake was that everyone believed that China, as it grew, would open itself to the world. Becoming the biggest economic powerhouse in the world would lead to a new generation of Chinese that would lead to the world’s biggest democracy. It hasn’t worked out that way.
But instead of China opening up and becoming a democracy, Xi Jinping has cracked down on freedom of the press, the party’s historical errors, and an independent judiciary. Have you noticed there are no recent reports coming out of China about exploitation of workers in Apple’s (or Nike’s) factories? The dissent in China has been eliminated. Protests are not allowed.
Xi’s stated goal is “the ultimate demise of capitalism.” The current push is for China to achieve self-sufficiency and make themselves non-reliant on Western capitalism, especially Apple. Rather than being an enlightened new leader for China, as the West hoped for, he is another Putin but with vastly more resources. The vulnerability for Apple, and the world, is staggering.
There is more in the book. A lot more. And the writing is excellent. I recommend the book to you. I don’t have room here to do anything except a broad summary of the most important point of the book. There are other subtopics that you’ll find interesting. Such as how the retail sale of Apple products caught Apple completely off guard. When the iPhone debuted, China was very poor and few people could afford them, at least according to conventional wisdom. But China very quickly became the biggest market for the iPhone, with an almost insatiable demand.
Another substory is the tale of Huawei and how they were smacked down by the Trump administration. This was really done to protect Apple, but Huawei is back with a vengeance. Still another is the effort to try and reshore the semiconductor industry to the U.S., an expensive exercise in futility.
Read the book. It’s amazing.
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