Images of people escaping from a factory facility in China at the end of October swept the world. Workers jumping over fences and fleeing cross-country or walking along roadsides to escape the harsh working conditions and quarantine measures put one of the most emblematic companies of these times, Apple, in the spotlight.
The event occurred at the Foxconn facilities in Zhengzhou, China, considered the largest iPhone factory in the world. Nearly 200,000 employees were working confined to the facility in an effort not to disrupt production of the cell phones. The company offered up to $55 extra per day to keep people at their jobs and prevent them from fleeing. However, they failed to maintain the production needed to meet worldwide demand, so Apple has already announced that there will be inconveniences to replenish stocks in some places.
Apple was hit hard by the fierce restrictions of the “zero-COVID” policy imposed by the Chinese regime, and is slowly beginning to suffer the consequences of entrusting the foundations of its economic empire to a totalitarian system.
For years, Apple made good use of the opportunities offered by a booming Chinese economy and highly profitable cheap labor. The ability to combine American design with the low cost of production in China made it the most valuable company in the world. In 2021, the iPhone reached the podium as the best-selling smartphone in China, its second largest market after the United States. Of course, for a foreign company to achieve such a goal would not be possible without the CCP’s approval.
Tim Cook, Apple’s CEO, signed a secret deal in 2016 with Chinese authorities estimated at $275 billion. Faced with threats from the Chinese regime to implement a series of regulatory laws that would hurt the company’s performance, Cook agreed to collaborate more closely in “country aggrandizement” by committing to help Chinese manufacturers develop more advanced manufacturing technologies, help train workers, use more Chinese suppliers, sign agreements with Chinese software companies, and develop technological research with Chinese universities.
He was also urged to collaborate with several government public initiatives, such as investing $1 billion in China’s ride-sharing business Didi Chuxing.
The new era that is opening in China under Xi Jinping leaves great uncertainties about the future of trade relations with foreign companies based in the country.
Since the time of former CCP leader Deng Xiaoping, the Chinese regime used the capitalist system, without leaving the rigid bases of control from a single party, to make its way in the world market and bring wealth to the country, so making money was a priority.
With the 20th CCP Congress this year, several policy measures suggest a return to the times of greater state control. Xi seems to have made it clear that the Party’s priorities are aimed at security issues and reinforcing communist ideology, leaving the commercial aspect on the back burner. The “zero-CCOVID” policy, which is wreaking havoc on the Chinese economy, slowing down manufacturing, and paralyzing internal and external trade, seems to be a good example. Both experts and statistics suggest that it is being used as a tool for political and social control, since from a health point of view it has no scientific basis.
Apple, in its race to obtain higher profits and at the same time please its host, initiated commercial agreements with Yangtze Memory Technologies Company (YMTC), a chip factory subsidized by the Chinese regime, to include its memory chip in the iPhone. This chip is sold at a lower price to win in the competitive market. This would allow it to significantly reduce its costs, as the chip represents 25% of the material cost.
Alarm bells went off from the other side of the ocean.
An analysis conducted in 2020 by James Mulvenon, director of Intelligence at SOS International, shows how YMTC is linked to the Chinese People’s Liberation Army. Its ties include senior executive involvement in China’s military modernization program and an ownership stake in the recently bankrupt Tsinghua Unigroup, which supplied the Chinese military.
The incorporation of this chip into the iPhone would encourage other American companies to use this product, increasing the risk of the theft of personal information from millions of Americans and becoming a national security issue.
The evidence was exposed on Capitol Hill, while U.S. Rep. Michael McCaul and Sen. Bill Hagerty called on Commerce Secretary Gina Raimondo to add YMTC to the “Black List” of entities that compromise national security. A Commerce Department official said YMTC could be part of this list as soon as early December.
In an effort to implement a plan B in the face of pressure from both sides, Apple initiated its first steps in decentralizing its production, targeting Vietnam and India as good alternatives.
iPhone 14 manufacturing at Foxconn and Wistron facilities in India was announced months ago and would start this month, while Tim Cook has already signed a deal to build a new factory in northern Vietnam to hold 30,000 workers. However, these attempts are a drop in the bucket compared to the infrastructure of factories and suppliers working for Apple in China, so escaping its dependence on the Chinese regime is impossible. James Mulvenon said, “It never made sense to cluster the entire supply chain within a country that was the most potent cyberthreat to the U.S.”