Deng Xiaoping’s “Opening Up” reforms in 1978 enabled China to develop export-oriented manufacturing hubs, establish Special Economic Zones (SEZs) in coastal areas for foreign investment, capitalize on its abundant low-cost labour, and strategically build world class infrastructure. Deng was convinced of the need to abandon the equalitarian impulse of socialism and embrace fresh experimentation to usher in prosperity. The effect was immediate. Foreign investment poured. Huge manpower within China migrated from rural to urban areas allowing for smooth transfer of workers to fill up its factories, made possible by its unprecedented attempt to simultaneously realise agricultural and industrial revolutions.
It was partially modelled after Hong Kong where such an experiment was tremendously successful as it combined three factors, low wages but efficient management, infrastructure and acceptance of the market which were denied by socialism. The immediate result was unprecedented not only in China but for the entire world. A nation of more than a billion opened and modernized at a spectacular speed. For the coming three decades, China maintained a growth rate of 10 per cent and lifted 800 million people out of abject poverty. After joining the WTO in 2001, China accelerated its integration into the global supply chain, creating a vast, well organized, resourceful, and competent environment, devising supportive policies by way of subsidies, faster approvals, lax regulations, and giving tax breaks to attract global companies.
After 2010 China transitioned from low-cost mass production to high-tech manufacturing in industries like electronics, EVs, and renewable energy, driven by R&D and innovation to emerge as the factory and laboratory of the world. Presiding over a unipolar world in his second term, US President Bill Clinton announced a new policy of trade and commerce. Brushing aside Ross Perot’s caution, he embarked on a massive scale transfer of capital and manufacturing to China and inaugurated NAFTA to include Mexico. The philosophical foundation of such a move was provided by theoreticians like Francis Fukuyama who were optimistic that a new world order would emerge, transcending the ideological conflicts that dominated from the late 19th century to the late 20th century. Unipolarity and the continuation of the American century into the 21st century as well was assured if the world’s most populous country, China, would demonstrate its firm commitment to free trade and democratic consolidation, as that would usher in a substantive middle class.
It would vindicate Lucien Pye and associates’ modernization theory, as was the case with both South Korea and Taiwan, two of the four prominent Asian Tigers. It was during this period of optimism in the early part of the 21st century that Apple, on the verge of bankruptcy in the late 1990s due to stiff competition from Microsoft and IBM with their much cheaper PCs, negotiated a partnership with China in 2001 and shifted its production with support of the US administration. “Apple initially moved to China,” according to Baker “to utilize China’s growing low-cost labour force and take advantage of the government’s willingness to make huge investments in the technology industry.
It enabled Apple to avoid the huge costs of building and running their own factories. Going to China allowed them to do much more, much faster, and at lower costs. They worked with partners such as Foxconn, who developed and ran huge manufacturing complexes and hired the workforce, all at their own expense and with government subsidies, in exchange for manufacturing Apple’s products.” Besides China, Apple’s turnaround was due to Steve Jobs and its iPod. Foxconn had a revenue of $1.8 billion in 1999 which by 2010 became $98 billion. In this spectacular achievement Apple played the most significant role as “it was not merely a merchant…but,” according to McGee “a kind of patron and mentor.” The Western comprehension of Apple’s operations in China is constricted and shallow as it highlighted the assembling process, low wages, and long working days, even suicides and unsubstantiated charge of use of forced Uighur manpower. It is true that Apple gained immensely by exploiting Chinese workers but equally true was the calculated move by the Chinese that allowed this exploitation with a deeper planning of exploiting Apple itself. Apple played a crucial role in making China technically sophisticated by providing finance, training the Chinese, and creating a new ancillary and supply chain of local manufacturers. It was the only foreign company, according to Baker, to operate without forming a joint venture with a Chinese company.
It curried a favour with the government by working with thousands of Chinese suppliers to teach them all aspects of high-tech product development to upscale their skills to the level their products required. It allowed Apple to create a huge network of capable suppliers, while simultaneously improving China’s skills in high tech. By offering staggering investments, Apple helped China to grow without seeking other foreign institutional help that stipulated steep regulations and interference. Since 2008, it has trained 28 million Chinese which is more than its entire combined work force in California. China, on its part, observes McGee, “brilliantly played its long-term interest against Apple’s short-term needs.”
China till 1999 did not produce any Apple product but by 2009 it produced all its items gaining immensely from Apple transferring intricate technology, as momentous, according to McGee, as the fall of the Berlin Wall. Apple’s investment, excluding many of the components of its hardware in China, reached $55 billion by 2015. Its investment in China is more than Marshall Plan’s entire aid by the US to Western Europe after World War II. The US spent $13.3 billion over four years to spur post-War development in 16 European countries which according to the chief administrator of the Marshall Plan was “the most generous act of any people, anytime, anywhere to another people”. Apple in China told Beijing that it would invest more than double that amount by 2021. Tim Cook, Apple’s CEO’s goal was to demonstrate to Chinese officials that Apple’s success in China had a ripple effect across the advanced electronics industry.
By teaching local suppliers, Apple instilled hands-on knowledge in both intangible ideas and tangible skills. Deng with full commitment to a one-China policy was pragmatic enough to realize that Taiwan was far more developed than the mainland. It had a much higher per capita income and human development, and a massive industrial base. China would need these Taiwanese assets for development. This pragmatism continues with Xi Jinping acknowledging that any reform would have to take along both the Taiwanese people and companies. Taiwan estimated that between 1991 and 2022, its total business investment would exceed an impressive $203 billion. In this consolidation Apple played the role of a catalyst. Between 2007 and 2019, every iPhone was assembled in Taiwan by Taiwanese companies operating in China.
But there was a significant shift subsequently with Chinese workers and companies assembling it in China. The iPhone operation is bewildering. It operates 200 production lines in China. Each one makes an average 3,330 units daily which totals a quarter billion per year. The Chinese have perfected the art of imbibing technology from others and then using it successfully with their skilled and hardworking manpower. A former designer at Apple comments “it looks like Beijing’s strategy was to ‘brain drain’ Taiwan, learn everything that is needed, then ‘cash them out’, and take over.” This was also stated by an Apple engineer who pointed out, “we have trained a whole country, and now that country is using it against us.” Apple supported an impressive 5 million jobs in China – 3 million in manufacturing and 2 million in ancillary industries.
Its expected revenue for 2025 was an unprecedented $414 billion. Since 2007, the earnings from one product, the iPhone, exceeded $2 trillion. Its profit of $94 billion in 2024 exceeded the entire revenue of NVIDIA. It is generally accepted that Apple’s investment of billions of dollars made China the manufacturing capital of the world by strengthening its infrastructure and training its manpower to the extent that by 2025 in computer science the six top universities are Chinese. The Chinese government poured billions of dollars into new infrastructure for Apple – building factories, paving new roads, constructing housing for Apple workers. Kate Whitehead who helped oversee Apple’s operations in China pointed out “I was around when they called up the local city officials and asked them to build another airport because we needed a larger airport to ship out more goods.” Doug Gutherie, another former Apple employee in China said “China set up industrial clusters where little components for Apple products were made and then quickly moved to a final assembly plant run by the company Foxconn.
Apple engineers were embedded there to keep an eye on quality control.” He also pointed out “if you knew how to navigate that market really well, which Tim Cook and Apple did, you could really find the best partner who would make the best component for the cheapest price. And that was sort of the brilliance of the system” The enormous power that China acquired in this period has led to a situation when China could use its veto effortlessly and effectively. A red supply chain has emerged much to the annoyance of American, Taiwanese, and Japanese partners. Apple today is an international giant with partnership of 15,000 suppliers spread over 50 nations but the collective strength of all these countries is dwarfed by the Chinese presence where 90 per cent of all its production takes place. It is ironic that the assembly operations in Vietnam and India are totally dependent on the Chinese supply chain.
McGee is of the view that the United States has reluctantly accepted Chinese authoritarianism but the biggest American company could not do that given its unbreakable business ties with China which offers “the right combination of quality, scale and flexibility needed to shape close to half a billion luxury products each year.” The growing and numerically large Chinese middle class is another important factor. It is a unique combination of the Chinese economic miracle, disciplined work force and sustained policy that have helped it to become the pivot around which Apple moves. China today is what it is largely because of Apple’s contributions to its modernization process. No other place on earth than China according to McGee “could have provided similar costs, efficiency and scale.” Apple in China reflects a win-win situation where both parties have enjoyed the maximum benefits possible. The partnership is likely to become firmer in the foreseeable future.
(The writers are retired Professors of Political Science, University of Delhi)