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Apple Inc. to End Years of Manufacturing in China

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By Newsvot News - - 5 Mins Read

Apple Inc. has notified several of its contract manufacturers that it wants to increase production outside of China, citing Beijing's stringent anti-Covid stance among other factors.

India and Vietnam, which currently account for a minor amount of Apple's global production, are among the nations that the corporation is considering as alternatives to China. 

According to estimates, independent contractors manufacture more than 90% of Apple products such as iPhones, iPads, and MacBook computers in China. Apple's reliance on China is a possible risk, according to analysts, because of Beijing's authoritarian Communist regime and its conflicts with the US.

Any effort by Apple, the largest US company by market capitalization, to emphasize production outside of China might influence the thinking of other Western companies looking to minimize their reliance on China for manufacturing and essential commodities.

Apple is looking to focus its production elsewhere after it warned China’s strict lockdowns were hurting its supplies. Copyright AP Photo

Relocation may not be as simple as it appears

Apple CEO Tim Cook indicated in April that the company's losses in the previous quarter were due to both the pandemic and an industry-wide silicon shortage.

Despite the growing number of reasons why US businesses may need to reconsider their connection with Chinese manufacturers, experts caution that the move will be difficult.

Making products in China also helps Apple to tap into China's massive and rapidly expanding domestic consumer market.

"Supply chain diversification is extremely challenging," Nick Marro, global trade head at The Economist Intelligence Unit, told CNBC. "They often talk about it, and boardrooms love to discuss it, but frequently at the end of the day people find it difficult to implement."

In April, when asked about Apple's supply chain in general, CEO Tim Cook remarked, "Our supply chain is genuinely worldwide, and thus the products are created everywhere," and added, "We continue to look at optimising."

Before Covid-19 spread over the world in early 2020, Apple was trying to diversify away from China, but the pandemic hindered its ambitions.

Now the Cupertino, California-based tech giant is pushing again and telling contractors where they should be looking to build new manufacturing capacity, the people involved in the discussions said.

Lockdowns imposed by China's anti-COVID policies in Shanghai and other locations have caused supply-chain difficulties for several Western enterprises. Apple warned in April that the comeback of Covid-19 may cost the company up to $8 billion in sales this quarter.

Expect no major or unexpected changes

Despite the growing list of reasons why China may appear less appealing to US businesses, some analysts predict that nothing will change dramatically or quickly.

The Journal also points out that Apple has spent decades creating its production hubs and partnerships in China, where it has access to a large pool of skilled labor and solid infrastructure.

Manufacturing  products in China also allows Apple, like other US-based companies, easier access to China's massive domestic consumer market.

"Supply chain diversity is extremely tough because people often talk about it, and boardrooms love to discuss it," Nick Marro, global trade head at The Economist Intelligence Unit, recently told CNBC.

Apple's move could trigger a trend of companies leaving China

If the allegation is correct, Apple's shift away from China may inspire other tech businesses to do the same.

According to recent data from the Institute of International Finance (IIF), a US-based trade organisation, China is already seeing a continuous fall in foreign investment, with outflows hitting $17.5 billion in March alone. 

It's been labeled "unprecedented," and it's also unique: other emerging markets haven't had the similar investor response during the pandemic, according to the association.

Another reason investors and US corporations are pulling out of Ukraine is China's failure to denounce Russia's invasion and ongoing war there. Political analysts also fear that Putin's war in Ukraine would empower China to carry out plans for an assault on Taiwan.

Meanwhile, the country's unprecedented commitment to a "COVID zero" plan, as well as energy shortages that resulted in disruptions in 2021, have raised concerns about the country's internal economy.