Apple’s ‘Symbiotic’ Relationship in China Faces New Questions

Apple’s China conundrum

Shares in Apple, the world’s most valuable public company, continued to tumble on Thursday after a report that China would extend a ban on iPhones for government workers. The company is on track to lose $200 billion of market value, with shares falling about 6 percent over two days to roughly $175 as investors react to a potential threat in one of its biggest markets.

But the ripples will be felt more broadly: If one of the most successful operators in the world’s second-largest economy is at risk, can any Western company thrive there?

China may be making things tougher for Apple. Officials at government agencies were ordered not to use iPhones for work or bring them to workplaces, according to The Wall Street Journal. Bloomberg later reported that this would also apply to other government-controlled organizations, including state-owned enterprises. (Some Western governments, including the United States, already bar public employees from using TikTok, the Chinese-owned video platform, and devices made by China’s Huawei.)

Apple manufactures most of its hardware in China, and the country accounted for about a fifth of total revenue last year. Apple doesn’t break out iPhone sales in the country, but TechInsights, a market research firm, estimates that in terms of second-quarter shipments, China was a bigger market than the United States.

Apple has avoided the pitfalls that have snared other Western companies amid rising U.S.-China tensions, building market share and remaining a sought-after brand. Tim Cook, Apple’s C.E.O., praised the company’s “symbiotic” relationship with China in March on his first visit to the country since the start of the pandemic. Apple is a big source of jobs in the country, and even if it wanted to shift operations, it would be difficult to replicate the best-in-class supply chain it has built in China over decades. Some analysts say the reports about a government ban are “overblown.”

Rising local competition could pose another challenge. Huawei, which is under U.S. sanctions that prevent it from accessing the most advanced chips from American companies, caused a stir last week with a new smartphone. The Mate 60 Pro reportedly was fast enough to suggest the company and Semiconductor Manufacturing International Corp., China’s biggest chip maker, are making progress in producing homegrown tech to replace Western brands.

Some China hawks are pushing for tougher measures on Western companies operating in the country (more on that below). But American C.E.O.s want the Biden administration to maintain communication lines with China, according to Gina Raimondo, the commerce secretary. And other brands, including Tesla and Starbucks, have big operations in China that wouldn’t be easy to unwind quickly.

In other China news:

HERE’S WHAT’S HAPPENING

Google settles antitrust charges over its app store. The tech giant said that it had reached a tentative deal with a group of states over accusations that it monopolized distribution of apps that run on its Android operating system. But the company still faces a big fight with the Justice Department over search, with the trial set to begin next week.

The eurozone’s economy barely grows in the second quarter. Gross domestic product for the bloc rose 0.1 percent in the three months ended June 30. That was below expectations, as a slowdown in China and elsewhere hit exports. The report comes ahead of a European Central Bank decision next week on whether to raise interest rates again.

Comcast accelerates plans to sell its Hulu stake to Disney. The cable giant’s chief, Brian Roberts, said negotiations over his company’s 33 percent stake in the streaming service would begin soon after Sept. 30. Roberts talked up the value of Hulu, calling it a “kingmaker asset” and saying it was worth much more than $27.5 billion.

WeWork seeks to renegotiate nearly all its leases. The move, announced by the co-working company on Wednesday, is an effort to cut costs and potentially shed underperforming locations after it warned last month that it might not survive.

China hawks head to Wall Street

A contingent of lawmakers has crisscrossed the country in recent months on a fact-finding mission, trying to determine how corporate America’s ties with China intersect with Washington’s increasingly restrictive trade policy there. Their next stop: Wall Street.

The House committee on competition with China will hold a series of discussions next week in New York. Chairman Mike Gallagher, Republican of Wisconsin, and Raja Krishnamoorthi, Democrat of Illinois, are leading a delegation to meet Wall Street power players, including several leaders of banks, hedge funds and venture capital firms. On the agenda is a tabletop exercise with retired military generals and financial firms gaming out the geopolitical and business ramifications of a hypothetical Chinese invasion of Taiwan, a person close to the committee told DealBook.

Attendees will include executives from Apollo Global Management and Centerview Partners, DealBook hears. Also on the calendar: a lunch hosted by Lux Capital’s Josh Wolfe, and a “field hearing” at the Council on Foreign Relations think tank, involving the former S.E.C. chair Jay Clayton, on the Chinese Communist Party’s potential threat to U.S. financial stability.

The committee wants to know more about money flows. Gallagher has warned that “millions of Americans have become financial backers of the C.C.P. without knowing it,” through their investment portfolios. The committee launched an investigation of the asset manager BlackRock and the finance giant MSCI, saying their funds were investing in Chinese companies that were deemed a national security threat or were perpetrating human rights abuses.

“It is important that our committee hear from the financial industry about how C.C.P. policies are affecting Americans’ savings and investments, and what Congress needs to do to help protect American investors and our national security,” Krishnamoorthi told DealBook.

What the Fed’s latest survey says about the economy

The U.S. economy may yet pull off a soft landing, but the outlook is uncertain for many American households and businesses, the Fed’s latest “beige book” survey of regional business shows. Here are three findings from Wednesday’s data release:

Profit margins are getting squeezed. Supply-chain costs are falling for many companies, but apparently not fast enough. Businesses are finding it harder to pass on price increases to financially stretched consumers — credit card delinquencies are on the rise — and that’s hurting the bottom line.

“Fun-flation” held up through the summer, but will it last? Consumers may have cut back on buying stuff, but they were still splurging on trips, concert tickets and Instagrammable experiences in July and August. The Fed singled out “stronger than expected” tourism spending over the past two months — but survey respondents said they considered this to be “the last stage of pent-up demand for leisure travel from the pandemic era.”

The labor market has cooled off. Hiring has slowed, and that’s hitting labor costs, confirming findings from last week’s jobs report. After huge pay gains in the first half of the year, businesses expect “wage growth will slow broadly in the near term,” the Fed found. That’s a key finding as the central bank weighs whether to raise rates at least once more to help bring inflation closer to its 2 percent target.

Big businesses brace for a big new tax

Some of America’s most profitable companies are steeling themselves for a new 15 percent corporate minimum tax, a provision of last year’s Inflation Reduction Act that is meant to capture revenue lost to prolific use of deductions to whittle down tax bills.

But while the new tax is projected to raise more than $200 billion over a decade starting in the 2023 tax year, corporate America and its allies in Washington are still scrambling to blunt its impact, The Times’s Alan Rappeport writes.

The context: Lawmakers have long been concerned about hugely profitable companies paying little in taxes thanks to clever accounting. A 2021 report found that 55 of the nation’s biggest businesses had paid no federal income tax the previous year.

About 150 companies could face significant increases in their tax liabilities under the new law, including giants like Amazon and Berkshire Hathaway, which have had effective tax rates in the single digits in recent years, according to the Congressional Research Service.

Experts warn of unintended consequences, like the law encouraging companies to change how they report their profits as they search for new loopholes.

Business has pushed back hard. Large financial firms and business trade groups spent more than $1 million in the first half of the year alone lobbying over the law’s implementation, according to the nonpartisan watchdog Accountable.US.

There’s still room to change the details of the law before the Treasury Department issues final rules by year end.

Doctoroff’s latest challenge: A.L.S.

Dan Doctoroff has been many things over a long, high-profile career: a financier, the man who sought to bring the Olympics to New York City, a top lieutenant to Mike Bloomberg in government and business, and a Google-backed entrepreneur.

But he is something else, too: an advocate for fighting A.L.S., the neurodegenerative disease that killed his father and uncle — and now afflicts him. The Times’s Christopher Maag writes about the latest stage of Doctoroff’s life, as he raises millions to fight A.L.S. and keeps busy while his own body slowly fails him:

He no longer tries to see the future. He is here, present, and it’s simple. With A.L.S., there’s no time to worry about time. He flies to Puerto Rico, Knoxville, Detroit and Provence with family or friends from high school. He rides his Vespa to meet his rich friends. He delivers his Target ALS pitch, wins a handshake and a promise for $200,000 or a million. He’s still on the board at Bloomberg Philanthropies and the University of Chicago, still gets dragooned into helping the mayor and the governor plan New York’s future. For a normal person, this is a busy career in full bloom.

For Mr. Doctoroff, it is retirement.

THE SPEED READ

Deals

• The paper and packaging companies WestRock and Smurfit Kappa are reportedly nearing a deal to merge, potentially creating a $20 billion giant. (WSJ)

• Amer Sports, the maker of Wilson tennis rackets and Louisville Slugger baseball bats, has reportedly filed to go public via an I.P.O. (Bloomberg)

Policy

• The White House will ban drilling in 13 million acres of Alaskan wilderness and cancel all drilling leases in the Arctic National Wildlife Refuge. (NYT)

• The Senate overwhelmingly confirmed Philip Jefferson as the Fed’s vice chair, making him the second Black person to hold the post. (Bloomberg)

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