Apple will take years and billions of dollars to reduce dependence on China

Apple will take years and billions of dollars to reduce dependence on China

American companies, for a number of reasons, are seeking to reduce their dependence on China, but in practice, a complete withdrawal from the PRC may prove extremely difficult, if not impossible, to believe by Bloomberg analysts.

Apple is really trying to reduce its dependence on China: some of the new iPhone 14 is already produced in India, and Foxconn, the company's largest supplier, has expressed its willingness to invest $300 million in expanding its capacity in Viet Nam. However, the withdrawal of only 10% of Apple's production capacity from China will take about eight years — 98% of the country's iPhone, experts from Bloomberg Intelligence say.

Toys and T-shirts can be quickly eliminated unless the manufacturers of toys and T-shirts have invested tens of billions of dollars in Chinese industry for 20 years, creating stable production chains. The break-up of these links could take as long, causing irreparable damage to an already weakened world economy. In recent years, the political factor has increasingly impeded the integration of the US and the PRC: the differences that arose under the previous president have intensified with the advent of a new one; Washington has imposed sanctions on the largest Chinese companies led by Huawai; the situation has been further complicated by the imposition of hard-core measures by Beijing to contain the pandemic; and the two countries ' contradictions on the Taiwan issue have been finally upset.

By the end of 2020, US companies had invested $90 billion in Chinese partners, and subsequent events did not prevent an increase of $2.5 billion in 2021. In reality, these amounts could be higher, because funds are also channelled through Hong Kong and classical offshores like the Cayman and Virgin Islands. Despite America's legitimate concerns about the possible impact of the trade war on the entire world economy, the US is slowly but surely breaking relations with China: on 23 September, Goldman Sachs' analysts published a report in which they stated that China's share of technology imports had declined by 10 percentage points since 2017, mainly because of the mobile segment.

Apple has the largest dependence on China among American technology companies, including Amazon, HP, Microsoft, Cisco and Dell. By 2030, the overall dependence of the US technology industry on the PRC could "in most cases" decrease by 20 to 40 per cent, and in the next decade electronics manufacturers could increase their dependency rates to 20 to 30 per cent, count it in Bloomberg Intelligence. The US President's Administration has adopted a two-pronged approach to this end: on the one hand, offers subsidies to US companies for the relocation of production to the US, on the other hand, prevents further investment in China, raising duties and introducing export controls. The Chips Act provides access to subsidies for companies that produce 28 nm and below in the US, and export control regulations have extended the import of 14 nm chips to the PRC.

The members of the American-Chinese Business Council stated that the optimism of American companies about China had fallen to record low levels: it had been facilitated by Beijing's tough non-proliferation policy on the pandemic, the power outages in the country and geopolitical factors — more than half of the respondents had therefore postponed or cancelled their investment plans; however, it was too early to speak of the withdrawal of American business; and the "China plus one" formula remained generally accepted, suggesting that the main production base was the PRC and that new capacities were being built in South and South-East Asia: India, Viet Nam, Malaysia, Thailand and Indonesia.

Last year, American companies announced their intention to invest about $740 million in Vietnamese production, the highest level since 2017 and twice as much as in 2020. The most important but vulnerable component of US supply chains is Taiwan, where TSMC produces more than 90% of advanced chips for civilian and military use. Apple, MediaTek and Qualcomm, whose hands are concentrated in 85% of the mobile processor market, produce their products on TSMC. Taiwan will remain the key producer of advanced chips in the next five years, confident by Bloomberg Intelligence analysts, but on the heels of its former territory is mainland China: 19 of the 20 fastest growing chip producers in the last four quarters of the world are based in PRC.