Tim Cook’s Beijing love-in shows Apple and China need one another

Did he mean it or was he just playing to the gallery? Tim Cook, CEO of Apple Inc has been all over the front pages – if not of the papers then at least of their business sections – pictured in China smiling and waving to his adoring audience. Apple has been the “it” stock for many years and the bellwether of the tech sector more or less since the day of its IPO in December 1980. On that day, the company sold 4.6 million shares at US$22/share. The IPO made headlines. It made 300 millionaires, 40 of whom were Apple employees and, as the largest shareholder, Steve Jobs found himself with a stake worth US$ 217 million. On day one, the stock rallied by 32 per cent, closing at US$ 29, giving the company an instant value of US$ 1.778 billion.

The stock price of Apple Inc has not been a one-way ride. It too has had its peaks and troughs, has seen better and worse days, but, since the introduction of the iPhone it has, irrespective, led the tech industry from the front. In December of last year, the stock hit its all-time high of US$199.62 for a market cap of US$ 3.08 trillion. That has fallen back a bit, closing last night at US$170.85.  

I am neither a techie nor a stock analyst. I’m actually a bit of a Luddite as my love for old cars with big petrol engines demonstrates. I love my house which was built around 1670. I have filled it with furniture largely made before the Age of Steam. I shun convenience foods, not because I regard them as being bad for my health but because I love to slice and dice with big old knives and to cook from fresh. On the subject of steam, I think my own tech guru reckons that my trusty old desktop goes back that far. I wear a lovely analogue 1969 Omega Speedmaster 2 that needs winding every morning. But I am a user of an iPhone and, in my own little way, make sure I have a reasonably up-to-date model in my pocket. No more than a month ago I traded up to one of the iPhone 15 generation. I don’t know whether there is a sociological profile with respect to iPhones over Galaxies and other makers but, within my circle, irrespective of age, the iPhone is ubiquitous.

I had back in 2009 bought for my ex-wife a very early iPhone model and had sat watching with both annoyance and astonishment as she wandered around with it, barely ever putting it down. I hung onto my Blackberry for quite a while longer but, once I had succumbed to my own first iPhone, I too found myself umbilically attached to it. Who can’t recall all those memes of kids sitting at the family lunch table playing with their phone? Now, be honest, don’t we all from time to time catch ourselves doing just that? I own an ailing iPad – the growth in the screen size on the phone has caused it to become largely redundant – and also have in the corner somewhere an outdated and dusty MacBook Pro. I never successfully transitioned away from the Microsoft-powered desktop to the Apple laptop.

Apple is to smartphones what IBM was to electric typewriters, Hoover to vacuum cleaners and Magimix to food processors. It is also more than that as it is probably the first truly global consumer item. It is as ubiquitous in Germany as it is in France as it is in Japan as it is in China. And as such it is also a diplomatic plaything. Not long ago, Tim Cook warned investors of the headwinds the company was facing in China as the government has restricted the use by government officials of Apple products. Yesterday he pitched up at the China Development Forum, having just opened a new flagship store in Shanghai where he declared: “I love it here, I love the Chinese people.”

At the opening session of the CDF, which is an opportunity for foreign businesspeople to meet Chinese officials, Cook retained his effusive enthusiasm by adding: “It’s so vibrant and so dynamic here….”.  China is suffering a slump in FDI, foreign direct investment, and this is a vital vehicle for Beijing to revive the love. News breaking this morning is that most of the attendees will be postponing their departure as President Xi has indicated he would be keen to make himself available. All of this defies the western narrative which has seen the US House of Representatives vote to ban TikTok and seen Washington and London unveil sanctions against Chinese hackers, allegedly linked to government agencies, and responsible for a range of cyberattacks.

Apple draws nearly 20 per cent of its total sales from China and the prospect of it becoming a victim of war will be pleasing neither its management nor its shareholders. Added to that, the EU appears to be drawing daggers on US tech companies. A new round of investigations by Brussels into supposedly anti-competitive practices of Apple, Meta and Alphabet – in old currency that’s Apple, Facebook and Google – has been announced. I yesterday came across a statement by the French far-right politician Marion Maréchal, born Marion Le Pen, the granddaughter of Jean-Marie and the niece of Marine, in which she says, “I am waking up at the age of 34 in a European Union which is a digital colony of the United States, an economic colony of China, a demographic colony of Africa, and it is becoming a religious and cultural colony of Islam”. For those unacquainted with Maréchal, I ought to add that she has left the family party of the Rassemblement Nationale and has moved further to the right with Reconquête. She was, by the way, elected to the National Assembly in 2012 at the age of 22, thus displacing Louis-Antoine de Saint Juste as the youngest elected representative, a record he had held since 1791 when he was elected at the age of 24. De Saint Juste had been a member of the inner circle of the Jacobin club, a close associate of Maximilien de Robespierre as a result of which his political career ended in 1794 in a rather one-sided encounter with the guillotine.

Apple is trapped between a rock and a hard place, being under pressure in both China and the EU. Global businesses need China, and it would be fatuous to believe that China does not need global business too. For too many years, western China-watchers have been waiting for, and vainly predicting, the rise of the Chinese consumer. Fei and Mei SixPack have been expected to replace the export market as key drivers of future growth. The crisis in the real estate sector has largely, but not exclusively, capped discretionary spending. For President Xi and his merry men to come anywhere close to meeting their growth targets – and I mean real growth, not that reported by the government’s statistical office – they need western consumers and, at the moment, they are walking a tightrope. I have little doubt that we are hacking them as much as they are hacking us except that we are weaponizing their hacks while they will be assiduously suppressing news that they too have been hacked.  

The CDF charm offensive is not to be taken lightly. Xi will want to see business leaders lobbying Washington with the hope that the rising anti-China rhetoric remains rhetoric, is not implemented and is, as the saying goes, cooked a lot hotter than it is eaten. Nationalism has become something of a dirty word but the love of mother and country will be needed if, as and when the geopolitical backdrop begins to stymie economic growth and the near axiom that citizens’ material standard of living must rise year over year. The elections in Russia, as bent as they were, did show what unrelenting propaganda can still achieve in this age of cynicism. As I commented at the time, even if Alexei Navalny had been able to stand in what we might have deemed to have been free and fair elections, the chances of Vlad the Invader not having still won in a canter are at best thin. The Chinese propaganda machine might also be strong but maybe not as strong as the Russian one. We have none at all.

China will be China and it is not about to go away. We’re not going to wake up one morning and discover that its unrelenting rise over the past thirty or so years was only a dream. Sure, its rate of growth is set to slow and slow further. At the turn of the century, US GDP outstripped that of China by around eight to one. By 2010, that lead had shrunk to closer to two and a half to one. In 2020, the US economy was merely one and a half times the size of China’s, a ratio that has remained more or less stable as its growth trajectory has flattened. In terms of per capita output, however, the US still leads by a factor of three and a half to one, a ratio which, adjusted for purchasing power parity in 2000, stood at twelve to one.  

Ultimately, Washington still holds more trumps than Beijing. Xi will be doing all he can to make sure that not too many of them are frivolously and rashly played in the developing Battle of the Geriatrics. He needs to reassure himself that Tim Cook and the other CEOs who are assembled at the CDF will be amongst the face cards in his own hand. All this, by the way, does not sway my firm belief that, for us, when it comes to both bonds and equities, China remains uninvestible.    

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