Apple is going to keep cozying up to the Chinese government, no matter how much it says it's investing in America, India, and other countries

• Apple has outsold its biggest rival, Huawei, in China and is poised to take more market share.
• But it plans to move manufacturing away from China after supply chain issues.

There are two sides to Apple's relationship with China.

On the one hand, Apple seems to be considering shifting its supply chain out of China to protect the company from supply chain disruptions like the one that temporarily shut down its factories in November, an effort that may take decades.

On the other hand, China is now one of Apple's biggest consumer markets and one of the few remaining countries where it could win more market share relatively cheaply.

Based on market intelligence firm IDC data, Apple sold 33 million units from the first to the third quarter of 2022, up 50% from the same period in 2019. One in five iPhones Apple makes now ships to China.

But per the IDC, nearly 330 million smartphones were sold in China in 2021. Apple, which enjoys about 50% market share in the US and many other countries, still has room to run in China. So far, in the three quarters of 2022, 212 million smartphones have been sold in China, with Apple taking a 15% share. In the third quarter alone, Apple sold 10.8 million phones and was the fourth largest-selling brand in the country.

Apple willing to play ball with China's government

While pursuing the Chinese consumer, Apple has made concessions to the Chinese government. In November, Apple limited the use of its AirDrop feature amid protests around China's "zero COVID" policy.

Last year, reports revealed Apple CEO Tim Cook made a $275 million deal with China in 2016, promising to source more materials from Chinese companies and help advance Chinese software manufacturing.

Apple seems content to court controversy in the US by offering end-to-end iCloud encryption, despite the outcry of the FBI. But in China, it offloaded iCloud servers to a Chinese state-owned company to comply with Chinese regulations.

To be fair, the company has also bowed to US government pressure. Nikkei reported Apple abandoned plans to use chips from Chinese government-backed Yangtze Memory Technologies over pressure from the US government.

A luxury brand gaining ground

Nabila Popal, research director of the Worldwide Tracker Team at ID, said Apple's growth in China has been tremendous, especially on the back of the success of the iPhone 12 to 14. Still, it remains a brand only for a select few.

"Apple is also a luxury or high-end brand, and it only operates on the higher end of the price band compared to other brands," Popal said.

Apple's biggest competitor in the premium smartphone market is Huawei, once the top-selling mobile phone manufacturer in the world. The US government placed sanctions on Huawei after the Trump administration accused the company of spying, restricting access to American-made chips. Subsequently, Huawei saw its phone shipments drop by 40% in the fourth quarter of last year.

With Huawei's decline, consumers looking for a $1,000 premium smartphone have no choice but to buy an iPhone.

Other brands in China have had a hard time breaking into the premium market. Popal said Huawei was the first Chinese brand to shake off the perception that Chinese phones were cheap. She noted that brands like Oppo and Xiaomi found more success catering to a more middle-class market. IDC said Apple now ranks fourth in terms of market volume in China behind Vivo, Oppo, and Honor.

Where the brand loyalty lies

What is not clear is how much China's consumer market values Apple. The robust buying power of Chinese consumers has attracted many top foreign brands to China's shores. But China's marketplace has been known to squeeze out foreign competition to champion domestic and more government-aligned businesses during periods of high nationalism.

Just look at what happened to Nike and Adidas. Both companies announced they wouldn't source cotton and other products from the Xinjiang region of China, where the government is accused of having forced labor camps for Uyghurs, a Chinese Muslim ethnic group.

In 2021, when the government responded to Western sanctions with its own, Chinese citizens behind the act called for a boycott of the foreign brands who negatively commented on the country's affairs. Adidas and Nike's sales tanked, and local players swooped in to pick up new customers.

Apple is eager to avoid that fate. Tim Cook has criticized companies like Meta and Google for collecting information on their users. "This is surveillance," he said at a privacy conference in Brussels. "This should make us very uncomfortable. It should unsettle us."

But Cook and Apple will likely continue to remain silent on China's own surveillance policies. It has repeatedly promised to "strictly abide by Chinese laws and regulations," and repeatedly removed apps that have run afoul of the Chinese government.

Tim Cook spoke to China Daily, a state-owned Chinese newspaper, praising China for having "one of the most vibrant developer communities in the entire world."

Apple regularly gets a round of bad press in the US, with media outlets and politicians calling out Apple for perceived hypocrisy. But with hundreds of millions of potential customers left to convert to iPhone users in China, Apple will absorb the hits.

Apple may not need Chinese factory workers. But, it's made the calculation that it very much needs the Chinese consumer.