Apple Inc (NASDAQ: AAPL) apparently concluded a secret $275 billion deal with the Chinese authorities. This is causing much tutting but should really be seen for what it is – an entirely normal part of international business. This is just the way the game is played by all governments.
The announcement by The Information doesn’t seem to have hurt the Apple stock price – it was up 3.5% yesterday and Apple Inc looks on track to become the first $3 trillion corporation in history.
The claim is that Tim Cook signed a secret deal with China on behalf of Apple. The country is a big potential market for Apple but back then in 2016, they were having problems with market access. China is also, of course, where near all of Apple’s production takes place (there are minor computer assembly operations in the US, iPhone in Brazil and now India as well). Keeping the Chinese government sweet could be seen as just good business. But on the other hand what, exactly, was promised in order to gain that favorable gaze upon Apple?
The answer, from the details of the contract we’re being told about, is absolutely standard and normal stuff. For what China wanted was that Apple invests more in the country. Further, that they agree to purchase more components and details from domestic suppliers. China was, for a long time, merely the assembler of Apple kit. The actual value added – which is the same as the value that stays there – was perhaps $8 to $10 per iPhone for example. That’s not a lot.
So, Apple agreed, so we’re told, to buy more components made in the country rather than simply importing everything from outside and using Chinese labor to put it together. As a result of this, the expansion of sales and the retail network within the country would be looked upon more kindly.
That’s largely the claim at least. And the thing about this is that this is entirely and wholly normal. All governments do look at incoming businesses and ask that there is domestic sourcing of components. That the value add is going to be more than just labor. This is true of the US, UK, Germany it’s even true of Bolivia (they are insisting that no one gets the lithium unless the batteries and cars are also made in that country).
Foreign domestic investment is usually festooned with such demands for local content and local sourcing. Look at any agreement from any government minister anywhere lauding that they’ve landed one or another large company as an investor. The talk is always of how much this is more than just a factory, this is a spur, a source, of much more local business than just that.
It’s unlikely that this revelation will have any grand effect on the Apple stock price. All the professional investors in the market know that such deals are just what happens everywhere. They’ll not change their views on valuation as a result. The only thing even vaguely surprising is the size, at $275 billion. But then Apple’s a large company, China’s a big country and this is over several years. The market’s reaction is likely to be – And?
One of the most frequently asked questions we receive is, “what stocks are best to buy right now?” It's a wide-ranging question, but one that we have answered… Our AskTraders stock analysts regularly review the market and compile a list of which companies you should be adding to your portfolio, including short and longer-term positions. Here are the best stocks to buy right now
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage . 68 % of retail investor accounts lose money when trading CFDs with this provider . You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money .
Tim Worstall is a freelance writer specialising in economics and the financial markets.