There is one big reason why China won't ban the Apple iPhone

There is one big reason why China won't ban the Apple iPhone
The U.S.-China trade war is one of tit for tat. Revenge and retaliation are at the heart of this ever-escalating battle. For example, last week the U.S. raised the tariffs on $250 billion worth of Chinese imports from 10% to 25%. China quickly added tariffs on $60 billion of U.S. exports. Now that the U.S. has put Huawei on the brink, what is to stop the Chinese government from instituting a ban on Apple in the country?

Securities firm Goldman Sachs thought that the idea of a Chinese ban on the iPhone was serious enough to crunch some numbers over. Goldman analysts, while not venturing an opinion on whether China will get revenge for Huawei, decided that such a ban would cost Apple 29% of its 2019 net earnings, or $3.35 a share. Last fiscal year, Apple had net of $59.5 billion so a quick and dirty estimate reveals that an iPhone ban in China could cost Apple more than $17 billion.

Many don't expect China to ban the device because such a move could harm China's economy. After all, Apple pays big bucks to contract manufacturers in the country to assemble the iPhone. In fact, because Apple depends on firms like Foxconn and Pegatron to manufacture its smartphone, the handset is considered an export from China and could be subject to U.S. tariffs in the future. If the iPhone were to be banned in China, Apple would be forced to cut production of the device, which might lead to huge layoffs of Chinese production line workers. With an economy already suffering from the trade war, this is something that the government there would try to avoid.

Huawei founder and CEO Ren Zhengfei still praises the iPhone


During Apple's fiscal second quarter (covering January through March), the company saw its revenues from China drop 21.5% from $13.02 billion the year before to $10.22 billion. The iPhone had a 7% market share in China during the calendar first quarter of this year, down from the 9.1% slice it earned for all of 2018. And even if China doesn't ban the iPhone, Apple's iPhone sales in China can suffer greatly due to the latest wave of nationalism that is gripping Chinese consumers; this is playing a role in deciding which new phone Chinese consumers can buy. Many analysts see Apple's market share continuing to decline in China. Zaker Li, who works for analytical firm IHS Markit, says that "Putting aside political issues, Apple’s product offering and pricing strategies will be core reasons behind its (market share) drop." Kiranjeet Kaur, senior research manager at IDC Asia Pacific notes that "Chinese consumers’ love for Huawei can only increase because of the ban. Unless of course hardware supply chain constraints affect the roll-out of its phones locally."

Earlier this week, an article in the South China Morning Post reported on a number of consumers in the country who are dropping the iPhone for a Huawei smartphone. Social media in the country is rife with comments like "Switch to Huawei! Hate those hypocrite. The era of 5G has arrived. Huawei has far more cutting-edge technologies than Apple." But even Huawei founder and CEO Ren Zhengfei had praise for Apple yesterday. "iPhone has a good ecosystem and when my family are abroad, I still buy them iPhones, so one can’t narrowly think love for Huawei should mean loving Huawei phones," the executive stated.

Still, in these uncertain politically-charged times, it is completely unclear what the future holds even on a day-to-day basis. There is still a possibility that Huawei is used as a bargaining chip by the Trump administration to win favorable terms in any future trade talks with China. Under that scenario, Huawei could be removed from the Entity List if a trade agreement is reached. But that still won't stop the U.S. from considering Huawei a national security threat because it could be forced to use its products to spy on American consumers and corporations. It is unclear what Huawei could do to clear its name in the states. And as long as the U.S. government continues to inflict harm on Huawei, Apple CEO Tim Cook has to worry about whether China will retaliate against his company as unlikely as it seems.

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17 Comments

1. shield

Posts: 836; Member since: Sep 12, 2015

Huawei delete iPhone!!

12. Georgio

Posts: 233; Member since: Nov 21, 2016

Only in your dreams!!

2. Poptart2828

Posts: 387; Member since: Jan 23, 2018

Apple is all but done in China and possibly Asia.

8. Georgio

Posts: 233; Member since: Nov 21, 2016

And Chinese will starve. Apple is too powerful!

16. mootu

Posts: 1514; Member since: Mar 16, 2017

"And Chinese will starve. Apple is too powerful!" China earns around $8 per iPhone sold, losing that is starving no one.

14. jacky899

Posts: 430; Member since: May 16, 2017

The Chinese adore American brands like no others. Apple throughout the years have profited from China much more than all Chinese phone manufacturers combined. Chinese people selling organs to buy iphones and ipads is a real phenomena in China but you never see Chinese people sacrificing organs for Chinese brands. American cars that are deemed inferior quality junk everywhere in the world is actually considered sought after luxury brands equivalent to BMW and Mercedes in China. American cars like GM sell more in China than in the US. Even if the US launches a missile strike on China for no reason, you will still only have a handlful of Chinese that would resent American brands, and those are the ones you see on the news. The majority of Chinese will still gobble up Iphones if they can afford it. The main reason Apple haven't been selling in China lately is because the recession in China making Apple products out of reach and there has been no significant updates since the Iphone X that was the best selling Iphone in China ever.

3. ahmadkun

Posts: 583; Member since: May 02, 2016

China has nothing to do against Apple .. the Action is between US and Huawei, if it was about china, they could have ban others like Oneplus, but as it is clear " just about Huawei "

4. User123456789

Posts: 885; Member since: Feb 22, 2019

Chinese brands love Apple. Otherwise there would not be reason that all these years they make phones with iphone design. Even important ppl at chinese brands were caught using iphone already.

5. Hollowmost

Posts: 421; Member since: Oct 10, 2017

they cannot ban iphone they can always make tariffs on foxconn goods.

17. mootu

Posts: 1514; Member since: Mar 16, 2017

They can ban anything they like. Under Chinese law they have the right to retaliate it whatever way they please if a Chinese company is under attack from a foreign power.

6. Leo_MC

Posts: 7432; Member since: Dec 02, 2011

Apple's net earnings in China were 13B and China accounts for 18% of sales. I don't know what kind of math Goldman analysts use, but the little math I know tells me that, if Apple will be banned in China, the most it can loose are... 13B and 18% of net profits.

7. xocomaox

Posts: 200; Member since: Dec 14, 2015

I don't think you understand how this works. They are not talking about sales of iPhones in China.

11. Leo_MC

Posts: 7432; Member since: Dec 02, 2011

First of all, "to lose" something means to have it in one's possesion and then missplace it, being depraved of, fail to keep it; the analyst are talking about future revenues and that is "drop in revenue". Second, the article is talking exactly about Apple's sales in China but... Third, my mistake: I based my previous message on Apple's quarterly revenue; Apple makes more than 50B/year so it is possible to see a drop in revenue (not a loss) of 17B or more).

13. xocomaox

Posts: 200; Member since: Dec 14, 2015

If you read the article there are many aspects that could affect Apple's revenue. Not just iPhone sales in China.

15. Leo_MC

Posts: 7432; Member since: Dec 02, 2011

Dude, this article is about Apple's sales in China...

10. whatev

Posts: 2242; Member since: Oct 28, 2015

China loves Apple, so I don’t think that’s going to happen

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