Thanks to Cook's secret payment to China, Taiwan's Foxconn lost some of its iPhone business

Earlier this month we told you that Apple and the Chinese government signed a secret deal valued at $275 billion. Apple reportedly made the payment to prevent the Communist Chinese government from taking regulatory actions against the company. And as we noted in our story about the payment, Apple is now receiving favored treatment in the country.

According to The Information, since the deal was made, Apple has turned to more supply chain partners from China in order to keep up its end of the deal it made with the country. For example, a year after the $275 billion deal was made, Apple had China's Luxshare assemble AirPods and it has pulled orders from long-time iPhone assembler Foxconn and gave them to Luxshare. The report notes that Apple's deal with Luxshare raises the latter's status placing it among Apple suppliers who assemble a finished product and also handle the packaging.

With Luxshare's star on the rise, Foxconn is understandably getting nervous about the possibility of losing Apple's business. So, it has assembled a team to study the company which we told you about over two years ago.

Over the last 10 years, Apple has been sending its engineers to work with Chinese companies to help them learn how to build its products. Apple is acutely aware that it needs to maintain a certain reputation in China, especially since the country is responsible for 20% of its business. It also is the largest market in the world for smartphones followed by India and the U.S.

In a way, replacing Foxconn with Luxshare for iPhone production is a risky move by Apple since U.S.-Chinese trade relations remain volatile and you never know when the Commerce Department might decide to punish more companies in the country outside of Huawei. Currently, Luxshare manufactures some iPhone 13 models, AirPods, and the Apple Watch.

If there is one country that Apple is heavily relying on, it is Taiwan. In addition to having Taiwan-based firms like Foxconn, Wistron, and Pegatron build its important devices, Apple is the largest customer of Taiwan Semiconductor Manufacturing Company (TSMC), the foundry that builds the chips used in Apple products. There is some concern that China might seek to "takeover" Taiwan.

But does Apple have anything to worry about here? After all, $275 billion goes a long way and that payment seems to have provided Apple with special favors and could protect the company even in the unlikely event that China attempts to take control of Taiwan and the country's tech manufacturers.

When the deal with China was made, Apple CEO Cook signed a 1,250-word "memorandum of understanding" between Apple and a Chinese government agency called the National Development and Reform Commission. Apple received some exemptions from regulations in the country while it helped the Chinese develop "the most advanced manufacturing technologies." 

Apple also agreed to use more components from Chinese suppliers, sign deals with software firms in the country, make direct investments in Chinese tech companies, work on research with universities based in China, train the country's most talented tech workers, and more. And this is where Luxshare comes in. As far back as October 2020, Beijing felt that Luxshare was an up-and-coming company that could help China's standing in the global tech industry and it wanted Apple to help prop up the firm.

At the time that Reuters made its report in 2020, one of its sources said, "Luxshare is set to rise ... it’s just a matter of how fast it could be. It makes sense for China to build up its own supply chain and Luxshare is in line with that state policy."