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From KQED in San Francisco, I'm Rachel Miro in for Mina Kim. Coming up on Forum, Apple users don't just use iPhones, iPads and such. We love them. The design, the reliability, the relative data security. It's hard to accept, as you have to accept after reading Patrick McGee's new book, Apple in China, that your beloved iPhone relies on a labor system we would never accept for ourselves here in the U.S.,
That Apple's rise in the last 25 years is the result of a codependent and toxic-to-us-all relationship with China that not even President Trump can untangle. That's next, after this news. This is Forum. I'm Rachel Miro in for Mina Kim. Most of us know the world is addicted to cheap stuff from China, but not the world.
not just cheap stuff. In the last two decades, China has become a manufacturing giant with the technological sophistication to make everything from EVs that compete directly with Tesla to TikTok, which crushes the competition, honestly. How did China get to be so economically powerful? In a word, Apple. Patrick McGee is the Financial Times San Francisco correspondent, and he's written a book that raises concerns
All kinds of uncomfortable questions. Patrick, thank you so much for joining us today. My pleasure. Great introduction. We're sitting in the same studio here. You can see that I've got an iPhone and a MacBook Pro. I spend more time with these devices than I do with any other human being. Why do you have to be such a party pooper? Why did you feel the need to write this book?
Well, I think we're missing the biggest story of the last 25 years in tech because we don't know much about Apple's relationship either with Chinese officials or really with the entire consumer market. And certainly we're missing the topography of how Apple actually builds its products. We know everything about product design. We know everything about industrial design that's led by Johnny Ive for the golden period of Apple. And we know so much about its product features. And I thought I
I think we in the tech world are just spending so much time doing things like product reviews, you know, how good is the latest iPhone, or trying to get ahead of Apple. And like, I call this pressing fast forward on Apple's own press releases, figuring out what the next products are going to be. I kind of think that's not our job.
I mean, how they actually make the products and what their influence has been like in China is an extraordinary story that really hasn't been told. And I get so many people who think they already know this story, and then they just flip to a random page in the 400-page book and realize that page after page, they don't know any of this. And so that was my experience first.
researching the book, speaking to more than 200 people, finding more than a thousand page of internal documents. And I think that, you know, it bears fruit to not to not to pun too directly on Apple. Well, that kind of rings true. I mean, I cover tech. I have for a very long time and business as well. And
You know, I wasn't covering product releases and, you know, shareholder meetings. But like many tech reporters, I already had this vague idea that Apple was taking advantage of cheap labor in China, that subcontractors like Foxconn were running the factories, and most people in China, the U.S., and elsewhere just agreed to look away from the moral implications, the headlines about suicides particularly. Yeah.
Boy, your book just burst this bubble of willful ignorance. Yeah, I try to flip some of that narrative on its head. So I think each of the things you just said there was true. But I feel like over the last 20, 25 years, the only story we've told about Apple in China is the tedium of the jobs, the 12 or even 16 hour workday's.
the Foxconn suicides, which were in 2010, 2011, allegations of forced Uyghur labor. Those are important stories, no doubt. But my book actually has very little about that. And the reason why is it's not a book about Apple exploiting China. It's a book about Beijing allowing Apple to exploit China so that Beijing can in turn exploit Apple. So really, it's a story of technology transfer.
That's a good way of putting it. But let's talk about churn and floating workers. One of the reasons you've given that Apple can't move the bulk of its production process to India or the U.S., no matter what the company or Tim Cook says to President Trump.
China has so many advantages that we are never going to match just by fiat and certainly not by tariffs. So, you know, the city of Zhengzhou, which Apple has a big factory in called iPhone City, you know, they have up to 400,000 workers working on assembling iPods or iPhones.
That is only during the portion of the year when they've ramped up to one million products a day. For the rest of the year, those workers aren't really there. And Apple certainly isn't having to pay them and the contractors aren't having to pay them. It's sort of seasonal work, but not based on weather patterns, but based on demand patterns.
And this is sort of the secret sauce of China. And it's something that philosophically we are never going to replicate. And that's why it gets to sort of difficult lessons of, you know, what can we learn from industrial policy in China and what can we not learn? And unfortunately, this is one of the things we're not going to learn because we're
China has a rural-urban divide. There is basically a dual-class citizenship structure in China. So if you were born in a rural area in the western hinterlands, you can go work in a city like Shenzhen. You cannot bring your family there because you don't have access to government services. You don't have anything like a welfare state, despite the country calling itself socialist or communist.
So you have a lot of these people that do have children, but their children get raised back in the Western hinterlands and they're raised by their grandparents. Good luck replicating that if we're going to do it. The number of people that are sort of classified as rural that go live somewhere else, this is called the floating population in China, it's more than 300 million people.
I mean, that is greater than the entire labor force of the United States. So, you know, there's been someone that's in the media recently. I love this quote. He says it would be like if the city of Boston, population 500,000, gave up everything they were doing just to work on iPhones. And yet that's not even getting to like a half of why it's so difficult, because it would also be if those same 500,000 people for three months of the year went to Milwaukee and then they went to New York and then they went to Pittsburgh. Right. We are just never going to replicate that. It doesn't matter how high the tariffs are.
We wouldn't want to replicate that.
And the Chinese government isn't, you know, obviously pushing Western-style environmental standards or labor standards. But it's more than that. This is a system that the Chinese government has developed over the decades.
to meet Apple's needs and other tech company needs, other manufacturing company needs? Yeah, absolutely. I mean, look, my book is about Apple, but I think people can rightly say, well, this is what lots of other Western companies have done and certainly lots of Chinese companies have done as well. I mean, Foxconn serves any electronics giant that you could think of.
So that's certainly true. The reason I quote unquote pick on Apple is that it has $400 billion of revenue. 80% of that revenue is hardware. 90% of that hardware is built in China. You find me another company of that size, I'll pick on them as well. Yeah.
Oh, goodness gracious. But, you know, like from a consumer perspective, I sort of feel like this is like when I go to fill up my hybrid car, it still needs gasoline. And, you know, which there isn't a gas station I can pull into, you know, fed by a company that isn't morally complicated. And this seems to be the same situation that there isn't.
a phone, a computer I could purchase that isn't free of this moral complication? Well, I want to say I'm not an activist. I mean, the book really is a 30-year history. And the conclusion is not thou shall not buy iPhones. I'm not really getting into that question at all. I do get asked it quite a bit. And so I'm thinking about it. But I would say that actually Samsung sort of fits the bill of what you're looking for there because they're not very exposed to China when it comes to manufacturing. And they do assembly of their phones in six countries from Argentina to Vietnam.
So, you know, again, I'm not saying wholesale drop all your iPhone products and go buy Samsung, but I don't think it's quite fair to just sort of cast aspersions to absolutely everybody. I think other companies have, frankly, done a better job. And it's worth knowing that, you know, as much as someone like Tim Cook, the CEO of Apple, might sort of be saying the right things at times and you might be led to believe, oh, you know, if Cupertino, the headquarters of Apple, really could push China in a liberal direction, they would.
I think that's deeply questionable. I mean, the fact that there's not a free media in China really works to Apple's advantages. The fact that there's no labor unionization really works to Apple's advantages. And the reason I'm highlighting Samsung is that, you know, they're working in places like South Korea, a thriving democracy where there is a free media.
There are articles about people developing certain forms of cancer by working in the factories and such. And, you know, I hate to say it, but I mean, the fact that South Korea is a democracy actually sort of is a hurdle for Samsung. So I don't want to be pro-authoritarian as a result of that. But it's really worth just highlighting that and sort of giving Samsung some credit.
Let's talk a little bit about Apple's approach to manufacturing. I mean, this really was a match made in heaven for them because Apple,
They have such specific specifications. Talk a little bit about how they developed their way of approaching manufacturing in China. You know, they didn't just send over specs to the contract manufacturers. No, they take such a maniacal and obsessive approach to how everything gets manufactured.
that I really don't think outsourcing is the right term. Now, there isn't a better term, but maybe I could coin one or someone could coin one based on the book. Apple sourcing. Yeah, apple sourcing. Oh, I like that. Let's revise it for the paperback edition. Yeah, new chapter.
So everyone knows Johnny Ive and Steve Jobs in terms of their obsessiveness over the details. But we've only really confined the narrative to how they would come up with a product, right? That the iPhone was going to have, you know, multi-touch glass of gorilla glass quality. That the iPod was going to be unapologetically white with its chrome back. That the translucent iMac colors in 1999 were going to be these lifesaver colors. And we've written all about that.
What we sort of have failed to do is understand that once you build everything someplace else, you have to teach, you have to instill, inculcate the culture of that obsessiveness wherever you're manufacturing it. And so because Apple really had this culture of zero tolerance for defects, but they're building someplace else, they had to send plane loads of engineers to other factories, right, across Asia, but more specifically in China as time went on, to teach, teach, teach, right, train, audit, supervise,
and eventually install millions of dollars of worth and then billions of dollars worth of machinery on these factory floors. So this is where you get to some crazy statistics and numbers where I began to realize Apple's influence on China was literally like that of a nation-building effort. I mean, that is not in the book pitch. I'll tell you that. I wrote a 70-page book pitch that contours of the story. It did not make any comparisons to the Marshall Plan. And yet the reason I had to go there is that
Apple did their own supply chain study in 2015 and realized that their contributions in the form of investment to factories was $55 billion a year. That is such a large and unfathomably large figure that I could not find any corporate equivalent. So for instance, it pales in comparison, or sorry, it's a larger figure than all Canadian and American private investment into NAFTA from the signing in 1993 to 2020.
I mean, how does one corporation have that sort of influence? And so it was just mind boggling. And I had to go to government efforts. So the CHIPS Act, for instance, the flagship Biden plan to bring chip fabrication back to America. That's $52 billion over four years. And it was called a once in a generation investment by the Commerce Secretary. Apple was spending more than that every year in China over the last decade.
Dear listeners, we are talking with author and journalist Patrick McGee, San Francisco correspondent for the Financial Times and author of Apple in China, the capture of the world's greatest company. We'd love to hear from you. Join this conversation. What questions do you have about Apple, China, China?
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You're listening to Forum. I'm Rachel Miro in for Mina Kim, talking here in studio with Patrick McGee, whose new book is Apple in China, the Capture of the World's Greatest Company. You know, I want to encourage our listeners to join this conversation, much as I want to hog it.
Because I have so many questions. And the questions that you might want to ask him have everything to do with Apple, with China, with, you know, the future of, you know, personal electronics, of artificial intelligence, with Johnny Ives. I mean, like, it's we're here to take all.
All of them. So please join the conversation. Email your comments and questions to forum at KQED.org. Find us on Blue Sky, Facebook, Instagram, Threads, Discord, or just do it the old fashioned way and pick up a phone. Maybe pick up your iPhone. 866-733-6786. And I believe we've already got a call. Why don't we just go to the phones right now and talk to Rob in San Francisco. Hi, Rob.
Are you there? You talked about what China or what Apple got from China as far as the manufacturing industry.
But what did China get from Apple? Because I've always understood that when a big company sets up shop in China, they have to share a lot of their technology with China. I mean, that's just this partnership that they have to form. What did China get from Apple as far as, you know, Apple's expertise? You know, that...
You mentioned at the beginning of the hour about how China really got a lot out of Apple, and that's why they're such a powerhouse now. Explain more of that part of the story. Yeah. So more than anything, in terms of the thesis of the book, it's actually addressing that question, because I think we sort of too often focus on the opposite direction. So.
I'll give you the narrative answer, because this really is a story told through the eyes of Apple executives and Apple engineers on the ground, you know, all the way from from really 1996, leading up to the present and, you know, going through COVID, etc. So basically, what happens is in 2013, Xi Jinping becomes president and he's
he doesn't see Apple as this great contributor. He actually sees it as an exploitative company that's not, quote, in China for China. And it's because of the reasons that Rob just explained. Apple was really operating under the radar for more than a decade. They
They didn't have any factories themselves, and they certainly didn't have any joint ventures. A joint venture is sort of the go-to model, if you will, that Beijing wants Western companies to operate in, which is to say that me and Rob can go set up a company in China. That's fine, but it's going to be 50-50 owned by some Chinese entity, perhaps connected to the state. And their idea is to learn from me and Rob and eventually thrive on their own. Yeah.
Apple wasn't doing any of that. And if you looked at public data, what you would see is like Apple margins exploding over the decade from 2003 to 2012, literally from 1% to 25%, whereas partners like Foxconn had their margins collapse. And so it really looked like China was being exploited by this powerful company. And on top of that, the iPhone goes absolutely wild in the years 2010 onwards in China. And it becomes, you know, this massive contributor to Apple's bottom line.
And the hardliners in Beijing are really upset about this. I mean, they see it as a pocket-sized emblem of capitalism, individualism, and Westernism. And so, you know, there's this editorial in a Chinese state paper that I quote that says, if you see anyone with the iPhone 6, cast your eyes on them contemptuously.
So Apple begins to worry that they're going to be blacklisted in the country, not an idle threat in a country where Facebook and Google already had been blacklisted. And so the most thesis-driven part of the narrative is Apple coming up with a plan to flip the table on its head, essentially, or flip the narrative on its head,
and explain to the top officials in China, look at all the ways we are contributing. And that's where that insane number that I quoted comes out, $55 billion investment a year. And it's really where the narrative becomes really interesting, where Apple's basically able to convince Beijing, look, you have no idea how much we are contributing to hundreds of factories.
And what those factories do with the skill sets we give them is they supply Huawei, Oppo, Vivo, and Xiaomi, companies that today have a 55% market share in the global smartphone industry. It's a fabulous, fabulous question, Rob. Thank you so much for asking it. And, you know, that's $55 billion per year by 2015. Am I right? So for those of us who have trouble with math, that's 10 years ago. Yeah.
Yeah, exactly. And so I try not to, you know, cite any figures that I don't have. So that's an internal document that I have. And then Apple pledges the same figure for the next five years, 2016 to 2021. If I did some back of the envelope math, however, you would say that was 22.5% of revenue in 2015. That is probably a rough estimate of how much they invest in China on an annual basis. Because remember, this is not some quid pro quo that Apple owns.
offers as some sort of concession to Beijing. This is just what they came up with on their own to understand how much they were training workforces and spending on machinery within the factories. So if you were to take 22% of revenue from 2008 to 2024 as a rough estimate for what Apple has invested in the country, it's north of $800 billion.
Oh, my gosh. Okay. Well, let's talk about the possibility, or more likely the impossibility, of Apple decoupling from China like the White House under Donald Trump would like them to. We've got a question along these lines from Bonnie in Santa Rosa. Hi, Bonnie. Good morning. Hi, thanks. What a great program. So I had a couple of points I would love to hear the author's, Mr. McGee's, take on. The first is...
Yes, there is no way that Apple or any other American manufacturing taking place overseas is coming back to America. Simply, they're entrenched. It's not going to happen. Secondly, nobody put a gun to American companies' heads and said you must offshore your manufacturing. They did it because they would face less environmental regulation and less labor regulation and probably some other things I don't know about.
Third point, I would really be interested if the author sees anything on the horizon that would be perhaps called an indigenous American manufacturing product or platform that we wouldn't offshore. I mean, is there anything that we do that we could do or maybe are soon going to do that isn't going to go anywhere? And thank you very much for the time.
Thanks, Bonnie. Let me unpack sort of the second bit of the question there, which was referring to sort of why American companies went to China in the first place. And I totally agree with you. I mean, it's because we didn't have sort of worldwide environmental protections, worldwide labor rights standards and so forth, that China was able to sort of, you know, let's say, exploit that scenario and use it to their advantage. I would only push back a little bit that Apple is not the company to blame for that.
And like to such a different direction, I would say that Apple was the last holdout, not offshoring, not outsourcing their operations throughout the 80s and the 90s, because the IBM PC in 1981 is the catalyst for a computer that can be sort of bandaged together with all these off the shelf parts. And it gives rise to the Taiwanese, the Korean, the Japanese electronics industries. And Apple is the only company that's not really doing that. I mean, they're building their own circuit boards and assembling their own computers throughout the 80s and 90s.
The result of that is they are nearly bankrupt. I mean, they are days away from bankruptcy. This is how the book opens in 1996. And so, yes, the industry got hollowed out, but it really wasn't because of Apple. It was actually, you know, when Steve Jobs went to Next Computer, the company he founded after Apple in the 80s, he said, my favorite thing about the computer is that it's not built in Osaka.
because Japan at the time was really where you were building everything. So I would sort of give Apple credit there. And there was like this American consensus, really, really, really even beyond bipartisan effort, that by moving things to China, you were going to inculcate liberal values and really like build the next great democracy in China. And to some degree, we had helped do that in post-war Germany, Japan, Taiwan, Korea. And so it was a great strategy in a sense. Only in retrospect, was it clearly a strategic error.
I want to mention that we did reach out to Apple and ask for comment on the book. Didn't get it. And I take it they're just not talking about this, are they, Patrick? They have called it wrong and full of inaccuracies. But I'll tell you that they've also said I didn't give them a manuscript to fact check, which is true. And so it's interesting that they came up with that statement before the book was on sale and they hadn't read it. Hmm.
You know, CEO Tim Cook's line is that it's a mutually symbiotic relationship between Apple and China, a mutual love affair, if you will. Buck writes, China has a growing middle class because of companies like Apple. It's hubris to say they have to be like us. America would do worse.
Well, to be less concerned with how others live. You know, I was taken by a stat you've quoted that, you know, in 1999, zero products from Apple were being made in China. By 2009, virtually all of them are. So I throw it back to you in a slightly twisted context.
Or, you know, given Buck's question, in 1999, how many Apple products were bought by Chinese consumers and how many by 2009? Oh, I mean, virtually none in 1999. I mean, there's a fun anecdote where...
Apple is so unknown in the country in 2004 that when someone in operations was visiting a factory and said, I'm here and I work for Apple, the security guard, and this is all happening in Mandarin, said, can I see your trunk? And she opens the trunk and says, like, why do you need to see my trunk? And he goes, I wanted to know what apples you were bringing into the factory.
The factory. Yeah. So it really was not a well-known company. It's a total blip. And in fact, the story of Apple becoming a major presence as a retailer in China is my favorite part of the narrative. And the shortest version is that they only opened the first Apple store in Beijing for the Beijing Olympics in 2008.
with such low expectations that the assumption is that they will lose money for years. And instead, revenues shoot up by something like 2000% between 2009 and 2012. The product becomes the most conspicuous status symbol in the country. And we get to such a crazy extent
A crazy thing in the narrative where Apple by 2010 has four stores, supply chain, I'm sorry, supply demand imbalance is so wild that these scalpers, these gangsters known as yellow cows who are backed by the triad organizations in China end up taking control of the distribution across the country. So basically like hawk iPhones at inflated prices. And it's a wild narrative that eventually culminates in complaints to the highest echelons of the Communist Party.
Wow. Allison writes, I worked in the medical diagnostics industry for many years, think COVID test, flu test, HIV test, in order for our company to market in China. Our colleagues in China made very clear we must share detailed proprietary information. We knew that sharing everything could allow China to create an independent
What I love about this question, I mean, you know, like, obviously, you know, we're talking about a lot of data.
Apple's engagement involvement with China is unparalleled. But there have been decades of corporate espionage. I mean, you know, they hack our computers. They said workers over here who hack the computers of, you know, unwitting employers or sometimes, you know, the employers know, but there's nothing they can do about it.
Yeah, I mean, it's a country of 1.4 billion people. It's tough to say no to that retail market. And nobody knows this more than Apple. There are only a dozen companies on the planet that make more than $10 billion in China. Apple easily tops the list with $70 billion of revenue. And that's not even the most important thing. The production hubs, the industrial clusters they've helped to build, that's the most important thing. And Apple knows more than anybody else that they couldn't just go easily set that up anywhere. If anything, it's a 10 to 15 year...
effort in India, but with no guarantee of actual success. And China sort of has Apple so over a barrel that the more Apple accelerates into India, which is really the sort of thing I would advocate, the more Beijing could pull a few levers, press a few buttons and make sure that the hurdles are raised. So for instance, we've already seen this since I submitted the manuscript.
the Chinese engineers that have the experience that India needs to go set up its production lines, Beijing has simply blocked them from going to India. The machinery that's often these days made in China that would be needed on the production lines in India, Beijing has just halted their export. So, you know, if that's the situation with Beijing... Can't Apple just, you know, say, look, this machinery is ours. This is ours. We're taking it. I mean, no. No.
Why not? Well, it's an authoritarian state. I mean, good luck expending your political capital on that. And even if for some reason they could do that, China could just retaliate by a couple of factories just lose electricity on a random Wednesday for four hours. Now, Beijing is almost never explicit about this kind of stuff. They're sort of too smart for that. It's really that they take action and Apple executives are wondering, huh?
Did the factory go out of electricity because of that India press release we put out? It's a nice factory you have there. It'd be a shame if something happened to it. I essentially quote that in the introduction. Yeah, absolutely. Wow. Okay, let's take another phone call. We've got Phil in Burlingame. Hi, Phil. Hi.
Hi, I want to echo the last caller. There's really no IP in China. They steal everything. And like the last caller said, many companies I know, very large American corporations,
are basically there to train them on how to create technology. And there's a theft that's going on there, but China is needed because of the market that they promised, although it never gets delivered. And the cost of goods sold, made in China is so low, and that's why America's moved into Singapore and Vietnam and surrounding countries.
So absolutely. And the only thing I would push back against there is my story is not a story of IP theft. It's a story of Apple playing the role of Prometheus voluntarily handing our biggest adversary the gift of fire.
You know, that's a great point. I've been thinking about the fact that, you know, you conducted, what, 150 interviews? 200, and I'm only counting the Apple people. I spoke to Apple suppliers. I spoke to experts. You know, you could tell me my sense of people who work for Apple just, you know, talking to folks here in the San Francisco Bay Area is,
They share some of the consumer's passion for the myth of Apple. They're proud to be part of it. They're sprinkled with the same pixie dust that makes it so hard to see the shadow story here behind the corporate mythology. Yes. And like I want to say, I mean, the book is not nearly...
It's not anti-China and it's not anti-Apple. And I think people think they're both. And then they're surprised when they start reading it because this is a book with no villains. If there is a villain or if it's an indictment, it's an indictment against shareholder-first capitalism, right? The idea that, as Milton Friedman put it in the late 70s, profits are the only thing that we need from our businesses, right?
There was basically a license given to corporations not to care about societal interests and just to go after the bottom line. Everything else takes care of itself. And Apple is sort of the exemplary example of that. But I don't portray Tim Cook, let's say, in a particularly nefarious light. I portray him as a master of detail, someone whose, you know, daily rituals are like that of Immanuel Kant, who people say, you know, they could time their watch to when he walked by every morning.
You know, he's someone that is like calculating and really smart and probably has a photographic memory. But that's how I portray him as someone who could really, you know, delve into the details and get everything right. The first meeting he held back in the late 1990s was for 13 hours. You know, I talk about how the most people on his team did not have glasses when they joined Apple. After a few years, they all did because they're staring at just dozens upon dozens of Excel sheets going through all of the numbers.
So that's how I portray him. I'm not portraying him as, you know, a greedy capitalist or somehow unethical or something like that. It's really like a neutral how it happens narrative rather than a dynamic – sorry, an indictment or a polemic. So not to put too fine a point about it, but some of our listeners are asking –
You're not calling for a boycott, for instance. No. I mean, look, I could see someone having their perception of Apple upended and making such a choice. But I'm sort of an old school journalist who's just trying to follow the facts and tell the narrative as I understand it. I'm not trying to make a big policymaking point or a political point and certainly not an activist point. Yeah.
It's a mutually exploitative relationship. Why do you argue it's a national security risk? So if you understand just how much technology transfer has taken place...
And then you understand that what the Chinese have done with it isn't up to Apple. Like the first thing that the Chinese did once Apple began training them was they built their own smartphone sector, right? They didn't just sort of relegate themselves to being suppliers. They built up Huawei, Oppo, Vivo, Xiaomi, which, as I said, have more than 50% market share.
But then, of course, you can build drones without electronic skills and you can build military weaponry. So that's where I get really worried that as a continuing basis, why should we accept that America's best engineers are going to our greatest adversary on a daily basis and training them in the world shaking important field of electronics?
We're talking with author Patrick McGee about his book, Apple in China, the capture of the world's greatest company. Oh, my goodness. Have you worked with a tech company in China? Perhaps you've even worked for Apple. Give us a call at 866-733-6786. That's 866-733-6786. Stay with us.
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Welcome back to Forum. I'm Rachel Meyer. We're in for Mina Kim talking now with Patrick McGee in studio. He's the San Francisco correspondent for the Financial Times and author of a book you must run, not walk, to read, Apple in China, the Capture of the World's Greatest Company.
And we want you to be part of the conversation. The phone lines are lit up, but why not at least give it a try? 866-733-6786. You can, of course, email us at forum at kqed.org or find us on Blue Sky, Facebook, Instagram, Threads, Discord, the whole schmear.
You know, we should talk about what's coming up next week. Right. It's going to be big. But one thing that we're not expecting from the conference, right, is any word about Apple intelligence, Siri, basically AI. What is happening with AI and Apple?
That'll definitely come up at the conference, right? Siri and AI. What won't come up is China, right? Right. China is not what's discussed by Apple. And, you know, my expectation is that journalists won't really be writing about the issues I write about. I think the book has to some extent been ignored by the tech press. I mean, it's been reviewed by the New York Times and Bloomberg and Foreign Policy and a host of publications, but very little in the tech press.
And it just strikes me as a bizarre thing where we're more concerned about their AI features than we are about the sort of wider geopolitical narrative. Well, you know, again, in the tech president's defense, there's this thing called the Trump administration that's been keeping us all on our toes. Yes, yes, yes.
But to address the AI question, to me, this is the growing credibility gap that Apple is experiencing. So basically, last year's WWDC was famous for Apple announcing a host of features, the bulk of which are not existent right now on the iPhone, despite it being sort of six months later when the new iPhone came out and despite a marketing campaign that demonstrated features that still don't exist. And now it's been 12 months since they first spoke about them.
And my book points to a couple other of credibility problems. Namely, I was able to uncover a bunch of documents that were made public in court discovery where Apple had sort of deliberately obfuscated and was accused of deliberately lying to investors about the state of Chinese demand in late 2018. And the documents I uncovered were...
which has never been reported on, including a deposition of Tim Cook, a deposition of the CFO Luca Mastri and a host of other people, plus internal emails between them and a competitive analysis of Huawei, their biggest rival in China. And it really revealed that Apple understood the problem of weakening Chinese demand for a week, if not three weeks, indeed, to some extent, if not six months before speaking to investors and telling them that everything was OK.
So the AI credibility problem that they're experiencing right now, I think, actually goes back to at least 2018, where there's something rotten in the state of Cupertino. Sergio asks, what...
OpenAI's new device is likely to be. And if they'll be going down the same road as Apple, which is to say mass producing it in China. I love that question. So look, it is so difficult for Apple to move its operations because it works with more than 1,700 factories and it is churning out more than 230 million iPhones a year, plus probably a similar number of all their other products if you're adding up MacBooks, AirPods and AirTags, right?
It's just so difficult to move something that large, right? It's the old statement about like a Titanic versus a speedboat, right? Well, I hope that Johnny Ive and Sam Altman realize they're in a speedboat, right? They don't need to make the gargantuan turn that Apple would need to make.
So they could build facilities here or perhaps in India, perhaps in Mexico. I'm sort of a big fan of like a NAFTA on steroids. It would be quite a gross error on their part to really do everything in China. Now, look, maybe they'll do some things in China and maybe there's going to be components come from China. I absolutely understand that. The problem is not trade with China. The problem is the...
Mm.
BK asks, I've read your book. I have recommended it to some people in India who are technical advisors to the government. You got to love the cake, you reading audience. I just got to say that. OK, but BK's question for you is, after the spectacular implosion of the Trump-Musk relationship this week, I suspect we have witnessed self-destruction of the baby steps to decouple from China. Do you agree?
Well, I'm glad that he has recommended the book to advisors in India, because if I'm thinking of what policy decisions could come out of this, New Delhi really does have the most potential here. I mean, anybody in electronics who is exposed to China is desperate for India to play the role of China plus one strategy savior. And I
I don't see enough movement on the part of New Delhi to really exploit or take advantage of that opportunity. And if you have an understanding of just what it means to have Apple's operational presence in your country, the more you would be willing to do tax exemptions and bonded zones and anything you could do to lure them in. Because Apple doesn't just buy factories, or I'm sorry, it doesn't just buy components from factories. It reshapes industries by going into those factories and training up the entire workforce. That would be such a net good for New Delhi.
And that would be such a net good for decoupling. BK, fabulous, fabulous question. We've got more calls. We've got to take some calls. Let's go to Heather in Bolinas. Hi, Heather. Hi. Hi. I have a question for Patrick about...
Apple in India, but would just like to establish my credentials that I've worked in China for 30 years and quoted in Patrick's book and have never seen worse working conditions in China than what's happened in Apple's supply chain.
over the last 15 years. So my question is about Foxconn and Apple in India, because India is a democracy and they're already having strikes. They're having worker slowdowns. Do you think Apple really will commit to India the way that they have to India?
China, and I'll take my response off the air. Thank you. Thank you. As soon as Heather mentioned she was from Bolinas, I knew that this was the director of a great movie called Complicit, which is about the Apple supply chain. And Heather was fantastic and was hired by Apple, or her firm was hired by Apple back in 2006 when they were first accused of having sweatshops. So yeah, we've got a real expert on our hands here. I don't see Apple moving to India at the rate that they are sort of pretending to move to. The sort of
inarguable stat here that I would just point to in case anyone is on the other side of this is that from the origins of the iPhone in 2007 to 2013, Apple development of the iPhone in China went from zero to 150 million units.
A decade later is when they started producing in India. So 2017 is the first year. And to 2023, they've done 15 million units a year in India. So at best, we're talking about one tenth the speed of development in India versus China. And yet that, as I pointed out in the book,
point out in the book vastly exaggerates the issue because in India, basically what you have is this final assembly of the product, not the making and molding of a thousand components that go into the phone, which is what you get in, in China. So remember in 2007 and 2013, Apple was inventing co-inventing all of the features, the, the, the,
everything that goes into the product, the design in China. India is having to take on a smaller task and is still not doing so at a great speed. That's not to say something bad about India. That's Apple's investments in the country are not tracking what they originally did in China. I would love to see an acceleration there, but Apple's not really putting it. It's not diversifying the way that people seem to think that they are.
It would seem then like you're describing this pincer that the company and Tim Cook atop it are just stuck between. You know, on the one hand, you've got China. They could shut this baby down instantaneously. On the other hand, you have Donald Trump who's trying to shut it down using his tariffs. Yeah, it's really worth knowing that Donald Trump is more of a threat to Apple's operations than Xi Jinping ever has been.
And that might strike you as like a biting statement, but it's inarguably true. I mean, think about it. In the broadest sense, Beijing and Apple really want the same thing, which is to say everything made in China. We've already talked about the technology transfer and all the reasons why Xi Jinping would like that. And it's sort of
even more obvious why what apple gets out of the relationship because they have world leading factories relatively low wages automation on a scale that we don't see anywhere else and you know distribution through world leading ports and eight lane highways and any number of things um that's going to be really difficult to to build or replicate in any other country well donald trump wants to see none of that uh development in china he wants to see all of it in america
And that is essentially an existential threat to Apple's operations. You're listening to Forum. I'm Rachel Miro in for Mina Kim. I think we've got time for another call. Why don't we talk to Michael in Nevada? Hi, Michael. Hi, good morning. I'm really enjoying the conversation. I'm curious, Patrick, thank you for all your insights and details. From the Financial Times, you know, where are all these billions of dollars being banked is my question.
And, you know, all those billions of dollars are improving medical care and wonderful education for the Chinese. No harm, no foul there. But we have a crumbling infrastructure socially, physically, environmentally in this country. And why is Apple allowed to get off the hook with all these billions? They're not banking them here in the U.S. And it's about the only thing I agree with the Donald on. Thanks very much.
It's a great question. And I have to say, I don't know the deep accounting of all this. But one thing I'll say is that Apple's investments in China do not show up in FDI numbers, right? Foreign Direct Investment. And I suspect the reason, and I'm open to being corrected if someone really knows here, but I suspect the reason is that Apple makes so much money in China.
And they have eight businesses in China. And so when they take those investments and then they reinvest in the country, it's not technically foreign, right? It's not that money is leaving California and going to China, which is what would count as FDI. It's eight Chinese businesses flourishing there and then reinvesting. Look, I love the idea of a company like Apple spending and investing more in America.
But unfortunately, it is kind of a pipe dream for them to be mass manufacturing in this country. And one of the more interesting narratives is that because of the Romney-Obama debates in 2012, Apple actually felt a bunch of political pressure and wanted to demonstrate that they could still build here. And to quote one of the engineers on the product,
project in Texas to build the Mac Pro, it was an unmitigated fiasco. It doesn't work well at all. And unfortunately, the way that it ended up happening at all, where you could buy a Mac Pro that said it was assembled in Texas, is Apple literally had to fly in engineers that they had trained in China from Foxconn to sort of take over the factory and get it all done. And that was in the heartland of America.
So more likely is something like what I called NAFTA on steroids. I would love to see more investment into Mexico, because when you have things in Mexico, you get intermediary trade between the two countries. So it actually really does help.
Now, look, it's not as good as just having the factory in Pittsburgh. I get that. But if you trade just for if you're importing just from China, the contributions from American companies making goods and parts is like 5% on average. If you're doing it in Mexico, it's more like 25%. So it really matters where something gets outsourced to. And I would love to see Apple take a lead on investments in Mexico. Yet another great question. I wish we had two hours to talk about this. You're listening to Forum. I'm Rachel Miro in for Mina Kim.
So I guess what we're describing here, Patrick, in a nutshell, is that the neoliberal dream of, you know, a rising tide raising all boats in China, in the U.S., just seems to be dead, dead, dead. And we just find ourselves in a frightening new situation where first China and now the U.S. are using this technology, much of it developed or perfected by Apple, to
to turn the entire world we're living in into some kind of, you know, fascist state enabled by technology. Wow. Well, that's quite, yeah, you're more dramatic about it than I am. I mean, look, that is a fair reading of the book, let's say. Again, I mean, I am this like friendly, outgoing Canadian golden retriever type. And yet you put me on this question and I am unfortunately quite pessimistic about it.
My assumption is that Huawei takes greater market share in China at the expense of Apple. I see Apple's market share in China probably falling below 10% by 2030. I think Harmony OS, which is the competitor to iOS and Android that Huawei has developed, is most likely going to become the de facto standard for all Chinese smartphones, probably at first in the country and probably in the future.
probably later when they export to the rest of the world. And the question would be whether like the Chinese firewall version of the internet is sort of embedded in the OS so that when you're buying a phone in Russia or Indonesia or any place else, if it's a Chinese phone, that it doesn't include sort of full access to the internet and we have this bifurcated internet. So yeah, I'm speculating here. These are sort of the dystopian visions, but it's harder to see a really realistic scenario that's full of optimism and bunnies and rainbows.
The most optimistic I can really see is that there's a fully bifurcated supply chain where Apple Inc. in China really does like one form of development, basically what we have now, and that they're able to sort of retie the knot, rather than untie the knot in China,
retie another knot that is centered around India, perhaps centered around Mexico, and would have a bunch of other nations. But you really have to, I mean, that is a multi-year, hundreds of billions of dollars effort if you're really thinking about the refining and the mining of metals and rare earths and everything that would be needed for all of the electronics components. That would be an amazing scenario, but you have to understand how slowly all of that would happen. But would it be slowly? Because, I mean, obviously the initial development takes time, but they know what they're doing now.
Yes. Well, this is where I think there's a bit of hubris on Apple. I have spoken to people at Apple who think 60%, you know, six zero percent is going to be the number of or the percentage of products built in India by 2020.
by 2030. That strikes me as a ludicrous prediction. But Apple, Cupertino is really divided on whether something like that can take effect. The reason I say hubris is I think Apple sometimes looks back at the last 25 years, pats himself on the back and says, look what we've created. Whereas I would point out China is
was a world leading once in a century partner that would do everything from building more than 20 ports in the country to doing eight lane highways to housing workers within the factory walls to building up these industrial clusters with such subsidizations that often what you had is Western companies literally being paid per unit rather than being a cost per unit to build something there. I mean, the subsidization of
was just incredible. And the epigraph to my book is perhaps where I could end this, which is from a Made in China 2015 document, sorry, Made in China 2025 document made 10 years ago. And it said, without manufacturing, there is no nation and there is no country. Find me another country that really prioritizes manufacturing in a sort of Nietzschean will to power way. And I'll tell you where Apple production is going to go, but I can't name any other country that thinks of it like that.
I need to sleep tonight, Patrick. You're making this impossible. All right. Tom writes, I spent 40 years in high-tech supply chain management, including six years at Apple. It is foolish to think China has no IP because they have not been afraid to vertically integrate. They mine raw materials, process and fabricate metals, plastics, integrated circuits, down to the finest level of assembly. We help them do this, but we should respect their expertise.
Yes, although I don't know what the question is there. So I agree. I mean, I quote somebody in the book that worked for Apple for 16 years. And he says, look, Apple's done a wonderful job of protecting its IP and retaining the experiential know-how of how to do everything. The trouble is they can't execute any of their plans without China because they didn't invest in any other country and no place has the capabilities. Well, we've talked a little bit over the course of this entire hour as to, you know, where...
Apple is going from here, where China is going from here. But again, in these closing minutes, where do you see Apple going from here? Are they just going to sort of myopically talk about the exciting developments with services?
Yeah, I mean, I don't have a whole lot of optimism and I maybe am failing in the imagination area, but I really just see the status quo continuing. And the status quo is one where China's manufacturing expertise, its robotics and automation and everything else, the industrial clusters are literally on such a scale that experts find it hard to fathom.
And Apple is a world leading company that builds almost half a billion products a year. I mean, that is just where they have to build everything. And if they accelerate to India, if they accelerate to Mexico, the things that I would like to see, Beijing can take action that prevents them from doing that. Beijing wants technology transfer to be a one way gate. The information comes in. It does not leave.
Unless that changes, I don't know how Apple gets out of this. The subtitle of the book is The Capture of the World's Greatest Company. That's not hyperbole to sell books. That is where I see The World's Greatest Company right now, captured. Well, this entire hour could have been not hyperbole, but an encouragement for you to run out and get Patrick McGee's new book, Apple in China, The Capture of the World's Greatest Company. You've been listening to Forum. I've been Rachel Miro in for Mina Kim. So thankful you could join us. Thanks, Rachel.
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