Commentary on Political Economy

Thursday 21 March 2024



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Hello, this is Allen Wan in Shanghai. 

Or should I say, nonghao? That’s how Apple CEO Tim Cook greeted the city this week, busting out his Shanghainese to herald the opening of Apple's eighth store there.

Cook was all smiles during the opening. But compared to his prior trips to the nation — including last year’s appearance at the high-profile China Development Forum, where he described Apple’s relationship with China as “symbiotic” — things are looking less harmonious this time around.

Tim Cook, Apple CEO, in Shanghai. Photographer: Qilai Shen/Bloomberg

Much has been written about the challenges Apple is facing globally. The US is suing the tech giant for antitrust violations, the EU is scrutinizing its money-spinning app store and the company has just jettisoned a decade-long project to build an electric car. There’s also an apparent lack of urgency in developing generative AI for its devices.

China may hold the key to whether the tech giant can get its mojo back. After all, it’s the world's largest smartphone consumer base, and home to more retail stores for Apple than any other location outside the US.

It won’t be easy. The long love affair Chinese consumers have had with iPhones may be fading: Recent data has shown plunging sales and market share losses to Huawei, the US-sanctioned Chinese tech giant that has benefited from a wave of patriotic buying for its Mate 60 devices.

Huawei and domestic rivals such as Oppo and Vivo have eroded Apple’s position in a market that yields nearly a fifth of its revenue, and from where the California-based firm makes the majority of the world’s iPhones through sprawling factories that employ millions of people.

Customers wait in line at Apple’s new store opening in Shanghai. Photographer: Qilai Shen/Bloomberg

It would be easy to blame rising US-China tensions but high prices, strong domestic competition and a slowing Chinese economy have also led to a change in buying habits. Even rare discounts haven’t moved the needle.

Xi Jinping's government is also probably none too happy with Apple diversifying its supply chain away from China to India and Southeast Asia at a time the nation's economy is looking a bit wobbly. Foreign investment is also falling, and multinationals are looking elsewhere for growth.

Adding to this, authorities last year broadened a ban on the use of iPhones in sensitive departments to government-backed agencies and state companies. Key iPhone assembler Hon Hai Precision also became the target of unspecified probes.

So far, Cook is hitting all the right notes.

He was greeted like Taylor Swift on Thursday night at the store’s opening right across from the touristy Jing’An Temple. I got there two hours before the opening and over 1,000 people were already waiting. It was the biggest crowd I’ve seen in the city since the Covid protests in late 2022.

I spoke to a first-year college student, who said it was very important for Cook to come to China amid a rocky time for Sino-American relations.

“The visit also represents the relationship between the US and China, and I hope I can see him today and take a photo with him,” said the student, who asked to be identified only by his surname He for privacy reasons.

Cook did mingle with fans and take some selfies, though he didn’t speak much. That didn’t matter, since his most telling comments came earlier in the trip: The executive told state media that there’s no supply chain in the world more critical to the company than China’s.

China likes to tout win-win cooperation in its dealings with the outside world, a claim often met with skepticism. However this time, if Apple can revive its sales in China and Beijing can lure back foreign businesses with a more delicate handling of the US company,  this may be one of those rare instances the phrase rings true.

Serious Allegations

Evergrande’s troubles are getting even more serious

The embattled property developer — once one of China’s biggest — has now been accused of fabricating a whopping $78 billion in revenue.

The nation’s top securities regulator says Evergrande inflated revenue by recognizing sales in advance in the two years through 2020 leading up to its eventual default. The company was slapped with a $581 million fine. 

The allegations mark yet another blow to the developer, which a Hong Kong court ordered into liquidation in late January. The fine means the company, which has about $332 billion in liabilities, will have even less money to pay off global creditors. 

It’s also troubling news for founder Hui Ka Yan, a man who was once among Asia’s richest tycoons but who now stands accused of one of the biggest financial frauds in history. The number dwarfs that of other notable cases, including Luckin Coffee and Enron, dealing a blow to the reputation of Evergrande’s former auditor PricewaterhouseCoopers and the country’s financial oversight

“The alleged fraud is shocking in its scale,” said Brock Silvers, managing director at private equity firm Kaiyuan Capital. “Hui became an expected civil and criminal target as soon as Evergrande was ordered into liquidation.”

The regulator’s action may pave the way for more serious charges against Hui, who was detained by police last year on “suspicion of illegal crimes.”

Lucky Number

580 billion yuan
That's the total sales of state-approved lottery games in China last year, a record high. Most customers were aged 18-34, suggesting young Chinese are trying to ease their angst over the economy by playing the lottery.

Laying Down More Law 

Hong Kong this week passed a long-shelved security law. It’s effectively a sequel to 2020’s Beijing-imposed legislation, which crushed dissent and triggered an exodus of residents fearful about the financial hub’s future.

The new law cements Beijing’s grip on the former British colony and marked a win for authorities. Initial attempts two decades ago to create the legislation prompted the biggest demonstrations in the city since it returned to Chinese rule. 

The latest law — known as Article 23 — put on the books new offenses, such as insurrection and external interference. It also broadened the definition of state secrets, raising concern for foreign companies doing business in the city. The legislation was approved by lawmakers in record time, underscoring how political debate in the city has been curbed.

John Lee after Hong Kong’s legislature passed a new security law.  Photographer: Chan Long Hei/Bloomberg

Chief Executive John Lee said he wanted to complete the legislation quickly so the city could focus on reviving its economy. The question now is whether the government can achieve that goal.

The implementation of the security law in 2020 dented Hong Kong’s reputation as a freewheeling hub. China’s growth has slowed, hurting Hong Kong’s trade, finance and tourism. The city’s role as a bridge between China and the West risks turning into a liability amid difficulties in US-China relations.

As a small economy with limited autonomy, Hong Kong has few tools at its disposal to turn things around. It’s no longer able to count on profiting just from the flow of money and goods between China and the rest of the world, so the city has been looking to the Middle East as a new source of growth.

The legislation also risks worsening ties with the US and other nations, potentially harming the city’s business environment. It could also diminish the interest of foreign investors, cutting off flows of much-needed capital. Lee and his government have their work cut out for them overcoming those concerns.

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