Apple signed secret $275B agreement with China: Report

Apple's strong relationship with the Chinese government has allowed it to circumvent limitations typically imposed on foreign companies.

Apple signed secret $275B agreement with China: Report
AP Photo/Richard Drew, File
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Apple CEO Tim Cook reportedly signed a $275 billion agreement with the Chinese government several years ago after promising that Apple would help China’s economy and its tech industry with investments and worker training, The Information reported on Tuesday.

“iPhone recently became the top-selling smartphone in China, its second-biggest market after the U.S., for the first time in six years. But the company owes much of that success to CEO Tim Cook, who laid the foundation years ago by secretly signing an agreement, estimated to be worth more than $275 billion, with Chinese officials promising Apple would do its part to develop China’s economy and technological prowess through investments, business deals and worker training,” the publication reported.

According to the publication, Cook established the five-year agreement in the first of a series of in-person visits to China in 2016. Cook was reportedly there to fight back against a sudden burst of regulatory actions against Apple’s businesses. The Information claims that it viewed internal Apple documents attesting to these details.

The publication notes that the Chinese market represents 19 per cent of Apple’s total sales.

Citing interviews and direct access to internal Apple documents, The Information details the nature of China’s priorities with Apple:

They included a pledge to help Chinese manufacturers develop "the most advanced manufacturing technologies" and "support the training of high-quality Chinese talents."

In addition, Apple promised to use more components from Chinese suppliers in its devices, sign deals with Chinese software firms, collaborate on technology with Chinese universities and directly invest in Chinese tech companies... Apple promised to invest "many billions of dollars more" than what the company was already spending annually in China. Some of that money would go toward building new retail stores, research and development centers and renewable energy projects, the agreement said.

According to The Information, and supported by reporting on Ars Technica, Apple has mostly honoured its part of the agreement. The tech giant's strong relationship with the Chinese government has allowed it to circumvent limitations typically imposed on foreign companies.

One such example is how Apple can maintain the encryption keys for iCloud user data in China. Other companies are compelled, by law, to give responsibility for that data to a Chinese operator.

However, despite the relative freedom Apple enjoys in China, the company must still adhere to government regulations and requests to censor content that run counter to the goals of the Chinese regime.  

Ars Technica reports:

Chinese officials have historically sought to emphasize the health of local and national businesses and have at times imposed or announced intentions to impose regulations that dramatically hamper foreign companies out of a desire to ensure success for Chinese businesses. Foreign corporations must often make a strong case that their success will be shared with local companies to avoid these outcomes.

Apple has performed better in China than most comparable American tech companies, and the report makes the case that this is in large part thanks to Cook's lobbying, dealmaking, and relationship building. In fact, Cook's strength in this area has been so crucial to Apple's global success that some members of Apple's leadership worry about the company's future success should Cook step down in the future.

In other words, while former Apple CEO Steve Jobs may be best-known for effectively trailblazing and popularizing new product categories, Cook may ultimately be remembered most for turning Apple into a more advanced, efficient, and profitable global business than ever before. If so, it would be thanks to this kind of dealmaking, as well as a strong mastery of supply line logistics. (Cook was also the chief architect of Apple's current product supply chain, which is heavily rooted in China.)

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