An overview of the best book I've read on business/tech/China: Apple in China
trade war, supply chain, and the capture of the world's greatest company
I thoroughly enjoyed reading Patrick McGee’s Apple in China so much that I felt compelled to write a synopsis. The book serves as a fantastic litmus test for various macroeconomic topics, including geopolitical trade wars, manufacturing and technology, national security, and their implications for the future.
Disclaimer: This is not investment advice and not a recommendation to buy or sell any companies mentioned in this post.
Diving Right In: The Backstory
The release of the iMac in 1998 marked the beginning of Apple’s gradual entry into China. It was America’s bestselling computer, boosting company revenues to $1.7 billion and profits to $152 million. Previously, everything had been made in the US and a few other countries. To meet the unprecedented demand, they turned to a Taiwanese company, Foxconn.
Other companies, such as Dell, moved to China because of the cost efficiency. What Apple saw was unconstrained design through affordable labor:
But what Apple was realizing was that thousands of laborers cheaply handcrafting Apple hardware on a conveyor-belt production line allowed its designs to be maddeningly intricate, complex, and automation-unfriendly.
Apple’s approach was different than every other company. They would embed their own engineers and manufacturing machines within factories like Foxconn’s and educate the workforce to create highly complex manufacturing processes. In a sense, they outsourced the actual production, but not the know-how. China deliberately allowed Apple to exploit its labor force, enabling the country, in return, to learn how to expand its advanced manufacturing capabilities.
Apple’s success stemmed from a deep understanding of manufacturing, often surpassing that of its suppliers. It created an internal operations division that managed production at an intimate level, dictated processes, and even claimed IP rights over innovations it co-developed. Apple used massive capital investment and legal contracts to keep suppliers aligned with its needs—no other company was doing it in this fashion.
Apple pushed for design quality and scale simultaneously, reshaping expectations. Unlike competitors who used standard parts, Apple created custom components and tightly managed manufacturing. This was likened to producing 10 million Ferraris a year—unheard of in traditional supply chains.
The massive success of the iPod reinforced Apple’s China strategy, and they continued to consolidate their production in China:
The number of investments in production equipment, placed in suppliers’ factories, is staggering: from 2001 to 2007, Apple’s capital investment in manufacturing equipment surged from $245 million to $1.1 billion, and is expected to hit $16 billion. This gave suppliers capabilities they wouldn’t have on their own and kept Apple in control.
The Apple Squeeze
Apple kept suppliers under pressure by embedding engineers in their factories, training them intensely while maintaining leverage through the potential for supplier switching. This dynamic, dubbed “the Apple Squeeze,” saw factories willingly operate on razor-thin margins in exchange for learning from Apple and potentially gaining access to massive order volumes. In 2016, Apple had profit margins of 33%, while suppliers, such as Oppo and Xiaomi, operated at 7%, 6%, and 2%, respectively. Additionally, suppliers would receive training for their employees from Apple in exchange for accepting lower margins. It was a win-win scenario for Apple and the supplier.
This was one of the secret ingredients to Apple’s success—they traded higher profit margins for teaching Chinese companies advanced manufacturing processes!
Why Not Other Countries?
Apple’s deep integration into China aligned, at times uncomfortably, with Chinese state objectives. Xi Jinping’s “Made in China 2025” initiative benefited from Apple’s investment in training, capital, and tech transfer. While Apple claimed neutrality, its operational presence functionally helped China upskill its domestic suppliers, reduce reliance on foreign tech, and dominate the electronics supply chain.
As one Chinese reporter summed up, “In China, ‘win-win’ means China wins twice.”
A Double-Edged Sword: Apple’s Dependency Dilemma
Apple’s success in China came at a cost: dependency. Despite talk of diversifying to India and Vietnam, China’s unmatched cluster of suppliers, skilled labor, and engineering sophistication has proven difficult to replicate. China offers not just labor, but an ecosystem—thousands of firms, rapid problem-solving, and high-speed manufacturing expertise developed over decades.
When Apple attempted to relocate Mac Pro production to Texas, engineers were flown in from China to help resolve issues. Even with a decade of sending top engineers to China, Cupertino couldn’t find the same talent in its own backyard.
This has forced Apple to continue expanding production in China. The numbers are staggering: By 2015, Apple was investing $55 billion per year in China—more than the U.S. government planned to spend over four years under the CHIPS and Science Act. Apple’s massive financial and technological contributions to China have had a transformative effect, rivaling national-scale industrial efforts, and are acknowledged even by Chinese leadership as central to China’s rise.
A New Chapter: Nationalism and Technological Rivalry
The threat from Chinese competitors, such as Huawei, now looms large. By 2018, Huawei wasn’t just copying Apple—it was shipping more expensive phones with better features. Analysts predicted Apple wouldn’t catch up until 2027.
Meanwhile, tensions between the United States and China have only intensified. Sanctions, trade wars, and anti-Western sentiment in China have cast a shadow over Apple’s future. The same machine that helped Cupertino dominate the global market could now become its most significant constraint.
The Future
Apple in China is not just a story about supply chains or corporate strategy—it’s a geopolitical case study. It asks difficult but necessary questions: What happens when the most valuable U.S. company is structurally reliant on a strategic rival? What do you do when “Made in China” isn’t just a cost advantage, but a permanent condition?
The supply chain that Apple established in China took over fifteen years to develop. They cannot simply move it to India or other countries.
For Apple, the answer is still unclear. But one thing is certain: the next decade won’t just test Apple’s product roadmap—it will test its geopolitical agility.
DISCLOSURE
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