Tim Cook signed secret $275 billion pact with China to gain concessions from the government

The Information today is reporting that Apple CEO Tim Cook signed a $275 billion agreement with Chinese officials five years ago that paved the way for Apple's return to the top of the Chinese smartphone charts for the first time in six years. After the U.S., China is Apple's second-largest market and it seems that this secret deal worked out by Cook and the Chinese government was of utmost importance in making the iPhone the top-selling smartphone in a country full of iPhone competitors.

Cook signed the five-year agreement with the Chinese in 2016 to stop an outbreak of regulatory actions threatened against Apple by the Chinese government. According to documents viewed by The Information, Apple was not doing enough to help the local Chinese government. But the agreement that Cook signed off on said that Apple would help improve China's economy and technological prowess.

Cook secretly signed the agreement during a series of trips that he made to the mainland five years ago. At the time, we said that the real reason for Cook's trip to China was to find out why the Chinese government was making it difficult for Apple to operate in China. For example, Apple had been forced to shut down iBooks and iTunes Movies in the country and lost a lawsuit that prevented it from using the iPhone name on non-smartphone items.

Apple was at a crossroads during Cook's visit to China where he was to meet with senior government officials, officials of the country's propaganda team, and Communist Party members. During the previous quarter, Apple's China-based revenues had declined by 26% and when Apple released its report, it kicked off a 10% decline in the company's stock. On top of that, big-time Hedge Fund operators were calling for Cook's removal and investor Carl Icahn closed out a huge position in Apple for a reported $2 billion profit.

Internal Apple documents reveal that Cook "personally lobbied officials" in China over the threats made to Apple Pay, iCloud, and the App Store. Cook allegedly signed a 1,250-word "memorandum of understanding" between Apple and a Chinese government agency called the National Development and Reform Commission. Apple agreed to make concessions in exchange for some exemptions from regulations.

As part of the agreement, Apple agreed to help the Chinese  create "the most advanced manufacturing technologies," 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 help with about a dozen causes belonging to the Chinese government.

Apple also promised to spend billions more in the country than it was already spending to put up new research and development facilities, build retail stores, and work on projects based on renewable energy. The documents browsed through by The Information helped it come to the conclusion that the agreement called on Apple to spend more than $275 billion over a ten-year period.

If both sides had no objections, the pact would automatically extend an additional year and run through May 2022. Other internal documents showed that Apple's investment in the deal amounted to a commitment of $275 billion over five years instead of 10. Apple has pretty much followed through on the contract and has been able to use its cooperation with the Chinese government to prevent it from limiting Apple's business opportunities inside the country.

The fact that Apple is getting favored treatment in China is no surprise. Ars Technica notes that Apple controls the encryption keys for iCloud user data, an extraordinary concession made by the Chinese considering that the Communist Chinese Party usually pressure foreign companies to give up their encryption keys.

The Information said that Apple relies heavily on Tim Cook to make international deals and that when he does leave Apple, the company could have problems dealing with foreign governments.