Apple faces big risks over its heavy reliance on communist China

Bank of America suggested on Tuesday that Apple faces significant risks from overreliance on China. This risk appears to be exacerbated by the communist state’s deteriorating relations with both the United States and Taiwan.

Wamsi Mohan and other Bank of America analysts said Apple’s risks center around policy, production and China’s domestic demand.
report In search of alpha.

“Although assembly is moving to other regions, the bulk of the supplier base remains in China, making it difficult to move all elements outside China,” BoA analysts said. “Over time, we expect Apple to incorporate more vertical integration and system-on-a-chip designs to enable a higher degree of automation of assembly.”

financial times newspaper
report Despite Apple’s recent efforts to increase its presence in other Asian countries such as Vietnam and India, China still accounts for about 20% of the California-based company’s revenue, and Apple’s iPhone, AirPods, More than 95% of Macs and iPads are sold in China. manufactured.

“China could pose a number of headwinds, including production, demand, competition, etc.,” the analyst continued. “While competitive risks are easy to quantify, other risks are highly fluid and must continue to be managed appropriately.”

Last month, one such blowback came from the Chinese government, which ordered workers to stop using iPhones at work.
chased by car Apple’s market value increased by $200 billion. This week, Apple was once again reminded of the downside of being dependent on an unruly enemy called America.

Foxconn is one of Apple’s largest suppliers;
assemble Approximately 70% of the company’s mobile phones. The Chinese Communist Party government has reportedly launched an investigation into the company regarding tax and land use investigations across China. report Wall Street Journal.

Communist Party tax authorities are investigating the company’s facilities in Guangdong province and eastern Jiangsu. Natural resource authorities are investigating Foxconn’s land use in Henan and Hubei provinces.

The company, officially registered as Hon Hai Precision Industry Co. Ltd., said in a statement on Sunday: “Legal compliance wherever we operate around the world is a fundamental principle of Hon Hai Technology Group (Foxconn). “We will actively cooperate with relevant organizations.” Units related to related work and operations. ”
report CNBC.

The investigation comes just months after billionaire Foxconn founder Terry Gou announced his candidacy for Taiwan’s 2024 presidential election. Gou resigned from Foxconn’s board in September.

Even though it’s gou
I support There is also speculation that China is putting pressure on him to exclude him from the election due to the communist regime and its preferred “one China” framework. This is because his candidacy could steal votes from pro-China candidates and benefit Taiwan’s Vice President Lai Ching-de. He has reportedly been called a “separatist” by the Chinese regime.

Gou’s campaign spokesperson
Said Voice of America: “The tax investigation Foxconn is facing in China has nothing to do with our company.”

But Lai hinted that China was putting pressure on Taiwanese companies during the election.

shown If anything, the investigation may serve as a warning to the United States.

Chris Miller, associate professor of international history at Tufts University, said: “This is an external attack, and it sends a message not only to Foxconn, but also to Foxconn’s customers, that if relations between China and the United States deteriorate, these We are warning that businesses may suffer losses.” It costs money. ”

“Any investigation into a major foreign investor or company in China would require at least political approval to proceed,” Miller continued. “And over the past few months, we have seen a trend of investigations related to political conflicts.”

Apple recognizes the risk that deteriorating U.S.-China relations could threaten its profits.

“If the dispute or conflict escalates further in the future, government action in response may be more severe and limited, which could have a material adverse effect on our business,” the company said. This is stated in the 2022 report.
annual report. “Political uncertainty surrounding trade and other international disputes could also negatively impact consumer confidence and spending, which could harm our business.”

Regardless of who the Chinese government is trying to pressure, Apple finds itself caught in the middle, relying heavily on political bargaining chips.

“Foxconn is a significant part of Apple’s supply chain in China,” Kenneth Jarrett, a senior adviser at Albright Stonebridge, a corporate advisory firm, told the Wall Street Journal. “Anything that jeopardizes Foxconn’s position in China, even if it’s unrelated to Apple, becomes a headache.”

It is currently unclear whether Apple CEO Tim Cook’s visit to China last week and recent apparent appeasement efforts were enough to smooth relations with the administration. Even if continued concessions to the Chinese government may help Apple in the short term, U.S. efforts to separate from the communist country are likely to complicate things for Apple.

“We’re on a path to some form of severing our economic ties with China, but it’s not going to be easy, and it’s going to hurt Apple the most,” said Walter, biographer of Apple co-founder Save Jobs. Isaacson says:
Said Tuesday’s “Squawk Box” on CNBC. “Most companies are trying to reduce their dependence on China, but Apple will have the hardest time making that happen.”

“We’re going to have to strike a balance between complete disengagement and complete dependence, which we’re a little bit too dependent on, and I don’t think that’s going to work,” Isaacson said. added.

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