China Decode: Why Apple Can't Quit China (ft. Patrick McGee)

In this episode of China Decode, hosts Alice Han and James Kynge unpack China’s high-stakes push for tech independence, from Moore Threads’ explosive IPO to Beijing’s drive to build a homegrown alternative to Nvidia. They also explore why the renminbi (CNY) remains deeply undervalued despite calls for a stronger yuan. Later, they sit down with Patrick McGee, author of Apple in China: The Capture of the World’s Greatest Company, to discuss Apple’s deep reliance on China and the broader political and commercial leverage Beijing now wields over Western companies. Learn more about your ad choices. Visit podcastchoices.com/adchoices

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

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• 0:31Speaker 01

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• 1:00Speaker 02

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• 1:15Speaker 03

  Overcapacity is seen as a problem from a Western lens, but through China's lens, this is just something where by producing more than they need and then exporting it at cutthroat prices or even losing money in certain respects, I mean, they're just deindustrializing other nations. And that's not good for sort of capitalism in the profit sense, but if you're using this as industrial statecraft, if not war, profit is not the goal.

• 1:43Alice Han?

  Welcome to China Decode. I'm Alice Han.

• 1:46James Kynge?

  And I'm James Kynge.

• 1:47Alice Han?

  In today's episode of China Decode, we're discussing China's strategy to compete with Nvidia. Why the renminbi remains so undervalued. And later, we'll speak with Patrick McGee, author of the fascinating book, "Apple and China: The Capture of the World's Greatest Company", about Apple's complex relationship with China. That's all coming up, but first, let's do a quick check-in with how the Chinese markets are starting the week. On Monday, the Shanghai A-share index rose 0.5%. The Hang Seng H-share index closed down 1.2%, its largest loss in over two weeks. Popmart International closed down over 8% on continued fears over North American sales trends. And Chinese chipmaker SMIC increased 3%

• 2:30Alice Han?

  as investors look to profit off of the budding domestic chip race. But more on that in just a moment. All right, let's get right into it, James. China's chip race just opened up a new front, More Threads, a startup founded by a former Nvidia executive in China, exploded more than 400% on its first trading day in Shanghai, raising over $1 billion and instantly becoming Beijing's latest chip champion in its push to build a homegrown alternative to Nvidia. The company isn't profitable yet. It's under US sanctions, and it's still nowhere near the cutting edge, relative to, say, Taiwan or the States. But its monster IPO signals something larger. China is pouring unprecedented capital

• 3:14Alice Han?

  and political muscle into manufacturing graphic processing units, or GPUs, hoping to close the gap and secure another pillar of technological independence. James, beyond this name being great, More Threads, what strikes me as being fascinating is the fact that you have such a huge gain on its first trading day. I looked it up relative to, say, Nvidia or even SMIC, and this is orders of magnitude larger. SMIC opened 64% on its IPO day stock surge. Cambracon was 230%, this is 425%. Now, we can talk about whether or not it's overvalued, but what is clear is that there's a ton of enthusiasm on the mainland for Chinese chipmakers. This is something that we flagged in the past.

• 3:59Alice Han?

  But what's your take, very, very quickly, on whether or not this is an overvalued stock and why we've seen so much frenzy for this new entrant into the domain that is really trying to be the Nvidia of China?

• 4:12James Kynge?

  Yeah, Alice, I mean, it's really hard to know whether this frenzy is justified at the moment, but what I think it does speak to is the size of the Chinese semiconductor industry, the size of the sector, and, you know, the prospects that this sector has. Already, China is the world's biggest market for semiconductors. This year, maybe there's going to be more than 200 billion US dollars spent in buying semiconductors in China. And this company, Moore's Threads, basically wants to replace Nvidia. I mean, this sounds like a, like a big aim, and it may be that, you know, Moore's Threads

• 4:54James Kynge?

  will never be the Nvidia of China, but at the moment, it looks like the market is betting on, well, maybe that it will partly replace some of Nvidia's sales in China. So that's a very big thing to say straight off, because Nvidia sells about 17 billion US dollars in China this year. That's about 13% of its global revenues. And as we all know, Nvidia is the world's biggest company. So as usual, in our discussions, Alice, we're painting on a huge canvas here. The implications of what may or may not happen here are really enormous.

• 5:34James Kynge?

  The other thing is that, as you've already mentioned, China has a clear and explicit policy to boost sales of domestic chips. That's domestically made chips and not imported chips. And as we've seen, China is putting its money where its mouth is. It's got something called the big fund. To give it its proper name, it's called the National Integrated Circuit Industry Investment Fund. It's basically around a hundred billion US dollars in three tranches that are given as subsidies to promising Chinese semiconductor companies.

• 6:16James Kynge?

  And the latest tranche is about fifty billion US dollars. So the Chinese state is very much behind companies like Moore's Threads that are aiming to replace foreign companies selling semiconductors into China. So at the moment, all those things seem to be sort of stacked against this small Chinese company, or well, relatively small. I mean, it's it's starting from a low base, it doesn't make a profit, it's on the US export control list. So there's a lot of things that are not necessarily auguring that well for it, but

• 6:56James Kynge?

  the big picture, the size of the market, the size of the government's support, and the fact that it makes a product or makes so-called GPUs, which are intended to directly replace quite a few of Nvidia's sales in China. All of those things, I think, are behind this enormous valuation and the way in which, obviously, investors of China are getting behind it. But overall, I'd say at the moment, it's too early to say whether this company will be successful. What's your what's your take?

• 7:28Alice Han?

  Yeah, I think it's too early to say. And just some details about this, to your point, James, they've really expedited the IPO for this company. They obtained the IPO approval from the Shanghai Stock Exchange in eighty-eight days, and that's a record in SSE history. And then we've got other listings that are coming down the pipeline as well that's worth watching. Apparently, this Shanghai Stock Exchange's approved applications from other chipmakers like MetaX, Integrated Circuits, SJ Semiconductor, Xiamen UXIC. So there's a whole host, as you're rightly mentioning, James, within ecosystem that they're really trying to rapidly build in chips. But the bullish case is that it's going to end up being something like Cambracon, which is a chipmaker for AI accelerators. And that's seen a fourteen fold surge in revenues in Q three.

• 8:11Alice Han?

  Now the company is finally profitable after running losses. But, you know, we were doing the maths together. The, in the first three quarters of this year, revenues are up one hundred and eighty one percent year on year. But still, in the last three years, Moore's Threads has run six billion, I mean, B of losses. It's still not yet profitable. And as we mentioned previously at the top of this episode, twenty twenty three, October twenty twenty three, Moore's Threads was added to the US's entity listing. So there's a ban on what it can import. And right now, to your point, James, they're trying to offer these GPUs within a full stack of chips, networking and software that is used to run the chips in data centers.

• 8:54Alice Han?

  So the goal really is to help in AI training, three D graphics rendering and, and physical simulation. Whether or not they can get there and be competitive in Nvidia remains to be seen. But it certainly is a compelling story, not just because of the government push, but even the background of the founder. This is a guy who worked at Nvidia at the China desk for fifteen years. He was the head of China. He was a computer science graduate from Nanjing University of Science and Technology, worked for HP and Dell before Nvidia, and now is a newly minted billionaire along with a lot of his other colleagues. So we'll see whether or not he can be the new Jensen Huang of China. But certainly, I think we agree, James, that there's a lot of government backing behind this guy, as well as the other companies that are coming up behind them.

• 9:39James Kynge?

  That's it, absolutely. And I think quite a few people in the US will be looking at the fact that the founder of this company, Moore's Threads, used to head up the operations of Nvidia in China and thinking, you know, how much American technology and know how is kind of going out the back door to Chinese companies? I'm not saying this is illegal, but, you know, as China begins to catch up, and you've mentioned some of the cases there, you mentioned Cambrikan, and of course Huawei has got some chips which are now competing and gaining some big contracts in the China market, now competing also with Nvidia. I think quite a lot of people in the US are wondering,

• 10:20James Kynge?

  you know, how do we stop know how and technology going out of the back door of some of our biggest companies to Chinese competitors? And I think that this is another case that really will concentrate the minds of policymakers in Washington and other people in the industry as well.

• 10:39Alice Han?

  Okay, we'll be back with more just after a quick break. Stay with us.

• 10:49Scott Galloway?

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• 11:52Scott Galloway?

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• 13:00Alice Han?

  Welcome back. As we head into 2026, one of the biggest open questions in global markets is whether China is finally ready to let the renminbi strengthen in a meaningful way. On paper, the currency is deeply undervalued and historically so, by as much as 40 to 50%, depending on the metric you use. And economists inside and outside China say a stronger yuan could boost household spending, ease trade tensions with the rest of the world and help Beijing pivot away from its export-led growth model. But politically, Xi Jinping's team is caught between wanting global credibility for the yuan and wanting tight control over the exchange rate at a time of deflation, weak domestic demand and a fragile property sector. Just to walk this back to first principles,

• 13:45Alice Han?

  the reason a currency's value matters relative to other currencies is that it decides the trade competitiveness or cheapness, simply, relative to other currencies. So if China is, and it has been, devaluing its currency relative to other currencies around the world, it effectively is making its goods cheaper relative to other goods around the world. So that's why this currency issue remains salient when we're talking about trade imbalances. You know, we've done some internal calculations over the last few years and it seems that the currency could be devalued by as much as 20% if you are accounting for internal and external dynamics in the balance of payments. We can go into the nitty-gritty of the balance of payments and why they diverge so much

• 14:30Alice Han?

  from the customs data that the Chinese government officially present. But I found compelling Brad Setts' point, and Brad Setts is really someone I rate highly in this space. Based on the IMF data, we could see the currency being devalued between eighteen to thirty percent, so as much as thirty percent. And the reason this matters is because it is fundamental to China's trade surplus with America, with Europe, with many countries in the rest of the world. And it's fundamental to the fact that Chinese economy remains structurally very imbalanced. You know, when you have a weak currency, it benefits the exporters, it benefits China's export-led growth model, but it does not benefit everyday households, everyday Chinese

• 15:13Alice Han?

  who are buying and choosing to use the CNY to purchase, say, foreign goods that are relatively then more expensive. So it's baffling, I think, to a lot of Western observers why, as China wants to rebalance its economy, it remains still wedded to a low CNY model. Because at the end of the day, it seems to be a disservice to the rebalancing efforts to support the household, to support domestic demand. But my own take, and I want to get yours very quickly, James, is that at the end of the day, as much as they talk about rebalancing, this whole economic model is still highly dependent on exports, is still highly dependent on the manufacturing sector. And if anything, the five-year plan that we'll see unveiled fully in March seems to

• 15:58Alice Han?

  suggest that they want to double down on this manufacturing-led growth. So I think even although they want to talk about, more recently, in domestic China, a stronger CNY, it's hard for me to see them let go of this weaker CNY policy. But I looked at the data of China's currency devaluation since about 2021. We've seen it go down eighteen percent, whereas the other currencies like the dollar and the euro have risen since the end of 2021. And more importantly than that, actually, what we saw this year In spite of the fact that the currency has been relatively strong to the dollar, if you look at the trade-weighted basket, and this is important, the CFE TS and M A B index,

• 16:41Alice Han?

  that's China's currency relative to a basket of other trade-related foreign currencies. It's been going down since the beginning of this year. It's been depreciating relative to the euro, to the G P Y, to a lot of these other trading currencies. And this is excluding the US, where obviously we've seen this weak dollar story that's driven some degree of relative CNY strength this year. But James, enough of my rambling about this. What's your hot take on the CNY and why it matters?

• 17:12James Kynge?

  Yeah, no, I mean, we're speaking just a few hours after China announced its trade surplus for November. And that means that in the first 11 months of this year, the Chinese trade surplus for goods already is in excess of 1 trillion US dollars. And that means that for the full year, it might be about 1.2 trillion US dollars, which, according to various estimates that I've been looking at, means that this could be one of the highest trade surpluses in history, roughly equivalent to some of the huge surpluses we saw the US have in the last years of the Second World War. So we're really talking about exceptionally high trade surpluses.

• 17:57James Kynge?

  And one of the reasons for that, of course, is that the renminbi, the yuan, the CNY, whatever we call it, is undervalued. That means that all of China's exports to the world are much cheaper than they should be, according to various different estimates that economists make. And I think the reason that this is so key right now is that some people, just a few, not that many, inside China are starting to talk about a window for renminbi appreciation. So the person that really came onto my radar was a man called Mao Yanliang. He is chief strategist at the China International Capital Corporation, which is a famous investment bank in China.

• 18:42James Kynge?

  Some people call it the Goldman Sachs of China. And he said that because China's manufacturing competitiveness is so strong, a window for renminbi appreciation is opening. And then another quite influential Chinese voice, Wei Zhen Shan, who is chief executive of a private equity company called P A G. He's based in Hong Kong. He said, and this is even more dramatic, that a gradual appreciation of at least fifty percent in the value of the renminbi over the next five years would be both feasible and beneficial to China.

• 19:25James Kynge?

  So I don't know if we agree on the on his estimate there of over fifty percent. But, you know, in the minds of several economists and some of the data that you've just been quoting, the renminbi is severely undervalued. We're talking twenty thirty. And so if this really does change now, even if there's a gradual appreciation that goes on for several years to come, so many things will change. China's appetite for imports may well change because it means that imports will become cheaper to Chinese people. Maybe investors all over the world will say, oh, Chinese assets

• 20:07James Kynge?

  are going to become more valuable relative to the US dollar as the renminbi climbs against the US dollar. And so therefore, let's buy some of these Chinese stocks. I mean, I remember I was in Japan in the eighties. I remember that happening in such a massive way in the eighties after the yen began to appreciate post the Plaza Accord in nineteen eighty five, I think it was. And we saw huge tidal waves of capital inflows into the Japanese market. I'm not saying that's going to happen this time. I don't think that history will repeat itself, but it could rhyme. You know, we could get a situation in which Chinese assets become more popular, more attractive to.

• 20:52James Kynge?

  Investors around the world. So the last thing I'd mention, which is a slightly humorous thing, is the so-called Big Mac Index. This is The Economist magazine's kind of back-of-the-envelope calculation on whether or not a currency is overvalued or undervalued. And it basically compares the price of a Big Mac sold at McDonald's in the US, let's say, compared to, in this case, China. And currently, a Big Mac in McDonald's in the US costs $6.01, whereas in China it costs the equivalent of $3.6 US.

• 21:35James Kynge?

  So you can see that even according to the Big Mac Index of The Economist, the renminbi is severely undervalued. So, you know, let's see how this goes. But there really is no more important price in a whole economy than the price of its currency relative to other currencies. So if the renminbi does start to appreciate, a lot of things will change.

• 21:59Alice Han?

  Yeah, I'm somewhat skeptical that the voices that you mentioned will be the dominant ones in this debate. As you know, James, for the better part of a decade, we've heard a lot of talk about China needing a stronger currency to promote renminbi internationalization. But when we look at the figures, they haven't really moved that much in terms of the share of global FX reserves, in terms of the share of global payments. Now, they've marginally increased in the share of global payments, but if you look at the share of FX reserves, the US is still at about 56%. China's is about 2% share of global FX reserves. And look, if they really cared about strengthening the CNY, this could help actually make CNY

• 22:40Alice Han?

  more attractive for payments in trade invoicing and for an FX reserve in the share of other countries' global FX reserves. So we'll have to watch this space. I'm a bit more on the skeptical side. One thing that I will add, as we're still in the midst of this phase two of a trade deal between the US and China, when I was in China in November, there was some discussion about a quiet Plaza Accord. You know, all the eighties between Japan and the US, where Japan quietly appreciated its currency, facing pressure from the Americans to do so. Similarly, we saw something happen between China and the US in 2016. There was discussion about a Shanghai Accord.

• 23:24Alice Han?

  Look, I think this could be a way in which China helps in the trade negotiations because ultimately Trump wants a weaker dollar and he believes that currencies really drive trade imbalances, rightly or wrongly. So again, we should watch this space because I think it's politically salient in the ongoing trade talks between Washington and Beijing. Certainly, this administration in the US cares a lot about currencies. So we'll have to see if there is pressure put on the CNY.

• 23:54James Kynge?

  Well, finally, we disagree on something, Alice. You're not buying this story of renminbi appreciation as much as me, I think. But that's interesting. I mean, let's see how it goes. I fully get your point. This is the dog that didn't bark on so many occasions, on so many occasions in the last 20, 30 years. I can remember when everybody outside China was getting really excited about the renminbi appreciation and often it never happened. And in some cases, the opposite happened, the renminbi depreciated. So, you know, maybe you're right, but I'm gonna, I'm gonna stick my neck out this time. I think it might happen this time. And I also note that President Emmanuel Macron of France, who was in China just recently,

• 24:36James Kynge?

  was talking about the threat of potential protectionism in Europe and, you know, things like that. So maybe it's on China's radar that unless it allows the renminbi to appreciate, it could be storing up quite a bit more pressure from some of its most important export markets.

• 24:58Alice Han?

  Yeah, definitely. Okay, let's take one last quick break and we'll be back with Patrick McGee, so stay with us.

• 25:08Scott Galloway?

  Support for the show comes from Vanta. As AI adoption grows, so does your company's security risks and requirements. New frameworks, audits, and vendors keep piling on, but your team isn't getting any bigger. Most compliance tools promise automation, but you're really stuck doing all the work by hand, chasing screenshots, validating controls, and playing catch-up when audit season comes around again. Vanta works differently. Their Agentic Trust platform is built to scale with you, not slow you down. With over 1,400 automated tests across 400-plus integrations, Vanta collects evidence and monitors your controls year-round, cutting your audit prep by 82%. Plus, you can access the Vanta agent everywhere you work, whether your team is in Vanta every day or living in tools including Claude or Cursor. Want proof?

• 25:53Scott Galloway?

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• 26:17Alice Han?

  Well, welcome back. We're joined now by journalist Patrick McGee. He is the author of the fascinating book, "Apple in China: The Capture of the World's Greatest Company," which was published earlier this year to widespread acclaim. Patrick, thanks so much for joining us. It seems quite fitting that you are our first guest. I believe there is an FT connection with James as well, but you are the honorary first guest, so welcome to China Decode.

• 26:41Speaker 03

  Amazing, huge honor. Thank you, Alice. Thank you, James.

• 26:44Alice Han?

  Well, let's go straight into your book, which I am midway reading, and I am absolutely loving it. Your book takes the reader through the recent history of Apple's incredible investment in China. What's striking to me is that Apple, as a company... Earning $400 billion in revenues is unlike most US tech companies. It is very hardware dependent and very China dependent. And in fact, in the course of its evolution and a relationship with China, it's actually doubled down on its China dependency. And iPhone is still its most important product with huge vulnerabilities because of its relationship and ties to China. Why to your mind has China doubled down on this strategy? That's made it even more reliant on China in the last few years and not less.

• 27:28Speaker 03

  Well, the subtitle of the book is the capture of the world's greatest company. And it's because there just is no other place on the planet where Apple can build products in the quality it needs, but especially at the quantity it needs. And of course, at the cost that it requires. They've been making, you know, investments in China across hundreds of factories for 25 years. There's just no other place where those investments would have the same return on investment. And there's no other place just capable of achieving what Apple has demanded. And so the history really is a narrative of how Apple and China sort of came to be partners. Right. There's sort of a marriage here of skill and scale. And I think there's a bit of hubris within Apple that thinks, look at what we did the last 25 years. Now we can do that in India.

• 28:12Speaker 03

  And for a bunch of reasons that like I wish were incorrect because I would love to see things take off in India. I just don't think that copy and paste strategy is really going to work. I think their fate is really tied to China for a host of reasons. And, you know, ideas that they're going to move production or diversify production to the United States, for instance, I think are fanciful. And we're going to have a whole host of bad policies if we think that's a realistic option.

• 28:33Alice Han?

  And just a quick follow up. Why is it that it's so hard to get off this China dependency? What is it that's so, so generous and unique about the China case? That makes it so captive?

• 28:43Speaker 03

  Apple's products are just really complicated and they're doing so at huge scale. So if you remember the first iPhone in 2007, they only made about 5 million of them. And it was only a US product, right? It didn't even work outside of AT&T networks in the United States. By 2015, they were building 230 million of them a year. Right. There are a thousand components within each iPhone. If you're building up to a million a day in peak season. You're operating with a billion components per day. I mean, America just doesn't have factories to really make any of those components, let alone all of them. And China introduces in the early 2000s sort of something called next door manufacturing where, you know, in the previous years, Apple would be building in Taiwan, but relying on a network that would be in Singapore, Thailand,

• 29:26Speaker 03

  you know, Malaysia, China would be part of it and Japan and Korea. And, you know, when you were prototyping something, you were literally crossing bodies of water, right? To sort of do the assembly and then make things work and then crossing all the way back to California to show it to Steve Jobs, right? This is sort of in the early chapters. China made that instead of crossing bodies of water and going through customs and all this sort of stuff. It made it a walk down the street, right? The way that they introduced world leading ports, eight lane highways, high speed rail. The efficiencies in China just aren't seen on a similar scale anywhere else on the planet. I mean, I've talked to people really senior at Apple in the 2000s who would say, even if we knew Xi Jinping was coming when the iPhone was birthed, where else would you have us go?

• 30:07Speaker 03

  There was just no place where you had the sort of what Kyle Chan has called absorption capacity to understand and deploy Apple's lessons. So, I mean, there's probably other reasons, but I hope that's a decent overview as to just why China is so dominant and why Apple has no other choice.

• 30:23James Kynge?

  Absolutely, and terrific to have you on, Patrick. I'm just interested a little bit in the political context of this. I mean, you started off by showing us how Apple has been captured by China. Does China's hold over Apple give China any kind of political influence in Washington or other forms of influence? What do you think about that?

• 30:47Speaker 03

  Well, yes, I mean, obviously China's hold over Apple is just one of many factors. So maybe it's difficult to pinpoint that expressly. But I just think when Donald Trump went after China in Trump 2.0, right? In just the recent months, Beijing didn't have to do a lot, right? Sort of lifted its sleeves just to show the muscle. I mean, the policy of, you know, licensing rare earth minerals for any sort of product wasn't even something that took effect. But the mere threat of that essentially was considered a break the glass moment and why. Washington complained about it, but essentially Trump had to back down. I mean, I think he's deploying a strategy that might have worked in 2016 and 17, not realizing just how more prepared for it China is this time round, right? I mean, you think of policies like the Belt and Road Initiative.

• 31:31Speaker 03

  I mean, that is many things, but one thing it is, it's an initiative to make sure that there are thriving markets outside of Europe, outside of America, where China can send its exports to. Made in China 2015, I think it's been a wildly successful plan on the part of China to become dominant across 10 different industries. And the book makes the case that Apple, however inadvertently, is the biggest supporter of Made in China 2015, which is a fairly stunning claim, but I think one that's pretty well backed up in the 400-page narrative.

• 31:58Alice Han?

  Well, the other thing that struck me as interesting, Patrick, in your book, is the fact that in a way, and I'm inferring it, you can't have Huawei and Xiaomi in China without Apple in China. That there were in some of these contracts embedded within the relationship between the OEM suppliers and Apple, that they couldn't be the suppliers too dependent on Apple. Can you walk us through that a little bit? Because I find that fascinating when we think about the introduction of these Western companies like Apple and Tesla, that in a way, they kind of kickstart a domestic ecosystem that wouldn't have existed without them.

• 32:30Speaker 03

  Yeah, I mean, this is sort of like a second order, third order impact of what it means to have Apple operations in your country, which is that, like, the biggest contribution, I think, the book makes to Apple history is that Apple doesn't outsource in the traditional way, right? If you and I build a product together, or design a product together, the idea of finding an outsourcer is, you know, someone that's competent in the wherewithal of how to actually build something. The assumption is that there is a producer available to do that. In China's narrative, or Apple in China's narrative, they don't find the competence in China, they build the competence in China. Literally just engineering 101 with so many Apple engineers that, you know, among the industries Apple disrupts is the airline industry, right? United begins flying to places like Hangzhou and Chengdu,

• 33:14Speaker 03

  places that are as furthest away like as is possible in United's entire network. And they begin flying there three times a week with the understanding that Apple will buy so many first-class tickets that it doesn't matter if the rest of the plane. Is empty, right? So they are having an enormous contribution, building up the competencies. In fact, purchasing the machinery and installing it on the production line of all these factories. And so, you know, that's just like sort of the biggest takeaway of the book, that Apple had this massive influence on all of these factories. So, once Apple has built up these competencies, what they experience is that, you know, if you remember the first five, six, seven iPhones, there were pretty major changes to those designs.

• 33:57Speaker 03

  And so what would happen is basically is if they obviated the need for certain components, ipso facto, they were obviating the need for that entire supplier. And because Apple's such a secretive company, that supplier would find out sort of at the last possible second. And again, if you remember going from five million iPhones in 2007 to 230 million by 2015, imagine you're on the ground floor of that sort of exponential growth and then Apple just cuts you off after you've made all sorts of investment and you've got all sorts of people in real estate and machinery. I mean, you would just go bankrupt. I mean, so this was just happening kind of all the time, where if Apple made that sort of turn, it was causing all sorts of sort of political problems because they'd be working with, you know, the likes of Foxon would be working with, who's on the politics and the grounds there.

• 34:42Speaker 03

  And so, Apple instituted this rule called the 50% rule, which was that they would tell their supplier, however fast you're growing with us, you need to grow that fast with somebody else. So it was a self-interested reason. It gave Apple flexibility, right? They felt like they could pivot without sort of causing such damage. But if I'm Lens Technology in Shenzhen and Apple's been telling me and teaching me and co-creating, to be clear, you know, facilities and processes to take corning glass that's cut by the meter and then cut it, temper it, you know, help etch it with multi-touch technology. Well, what am I going to do with that, with those ideas? I'm going to teach the local homegrown suppliers. I'm going to teach Huawei and Oppo and Vivo and Xiaomi. So, Apple, in a sense, built up its own competitors

• 35:25Speaker 03

  who were able to rely on the very competencies that Apple had brought to the country. My sort of quip about this is that in the West, we often think that Apple killed Nokia, right? Nokia wasn't able to keep up with multi-touch technology and software, the iOS. I think it's much more of a hardware story. But if it's a hardware story, Apple was never big enough to kill Nokia. Nokia often had 50% penetration in certain markets. Apple's never had more than 20% globally. So who killed Nokia? And the answer is the Chinese competitors that Apple had made so good by building up a supply chain that they could all rely on.

• 35:56James Kynge?

  Fascinating. Just looking forward a little bit, Patrick, I mean, if we try to think forward maybe a decade or five years or something like that, what hope do you think the rest of the world, I mean, the West, has to loosen China's capture of Apple and and other big tech companies, not just Apple? I mean, in the case of Apple, there is this attempt to get manufacturing going in India. I've seen various numbers, but there are quite a few iPhones now being made in India. Do you think that's a long term strategy? Do you think it's something that could bear fruit over a five, 10 year time scale?

• 36:36James Kynge?

  Or are we basically in a world in which China captures Apple, dominates the the supply chain for for smartphones for the foreseeable future?

• 36:47Speaker 03

  It's such a pessimistic outlook at the end of the book, and it's unfortunately the one that I still have now. I'm always hoping that some expert is able to shake me out of my pessimism, and I've sort of been asking that, you know, adamantly of all sorts of people that I've been meeting over the last six months, and basically just nobody has been able to do it. And they're not really even trying. I mean, the sort of the more you know about the fields, the more you understand about China's dominance in these sectors and how incapable other places are, not least of which, America, but unfortunately, India for a host of reasons as well. So, I mean, look, it's basically, you know, engineers and executives that are working in India on behalf of Apple or its suppliers like Foxconn and Tata, that are the ones that are saying like, this isn't working the way that that we need it to, right? If you talk about India speed, you're not talking about as the equivalent of Shenzhen or China speed.

• 37:32Speaker 03

  It's unfortunately a pejorative term. India just doesn't have the same next door facilities or ecosystems. They want to have the higher value added stuff, the sort of things that the Koreans, for instance, are really great at, but they don't quite get that what makes China so good is having everything, right? Deeply skilled PhDs at Foxconn coupled with migrant labor, where the job can literally be talked to you in 20 minutes on a Monday, and by Friday, you're already at the peak of your strength, your abilities to be able to pull that off. India sort of doesn't want to play those roles, or rather, the ministry drivers driving the change in certain provinces like Tamil Nadu and Karnataka don't want to play those roles. And yet, if they don't, they're never going to compete with China. So unfortunately, I'm quite pessimistic about our chances.

• 38:16Speaker 03

  And I would maybe just point to basic statistics and projections like from the United Nations that would say China today has roughly one third of the value added in manufacturing. And their projection for 2030 is that China will have 45% of it. I want to be more optimistic, but when that's the sort of broader paradigm that we're working in, where's the optimism coming from?

• 38:35James Kynge?

  Absolutely. If I could, if I could just have a quick follow up. I mean, what kind of geopolitical power does this give China? I mean, if China is making 45% of the world's manufacturing value added by 2035, was it? And, and there's another reference to a scholar calling China the OPEC of intermediate products. Cause it makes so many of the components that the world needs to make just about everything. What sort of geopolitical power does that give China going forward? I mean, does that mean that China can basically hold everybody to ransom, indulge in a bit of economic coercion? When it wants to get its way in the world, either politically or, or in economic matters?

• 39:19Speaker 03

  Yeah, I mean, aren't we already seeing that? I mean, that's, that's sort of the lesson, I think, over the last six months or so. So I, I would sort of say we're just watching that play out, right? I mean, even before Trump 2.0, it was Biden that put 100% tariffs on EVs coming from China. And if Europe sort of doesn't impose that sort of policy, you're just going to see more and more electric vehicles taking over. There's this line from Noah Smith that I really like, you know, the economist who talks about how overcapacity is seen as a problem from a Western lens. But through China's lens, this is just something where by producing more than they need and then exporting it at cutthroat prices, or even losing money in certain respects. I mean, they're just deindustrializing other nations. And that's not good for sort of capitalism in the profit sense.

• 40:04Speaker 03

  But if you're using this as industrial statecraft, if not war, profit is not the goal.

• 40:10Alice Han?

  That's a great way to think about it. Patrick McGee, thank you so much. This is a great case study for how hard it is to actually decouple from China. Patrick McGee is the author of Apple in China. Patrick, thank you so much for your time.

• 40:21Speaker 03

  Thank you. Appreciate it.

• 40:25Alice Han?

  All right, James, it's predictions time. What's your prediction for the week?

• 40:29James Kynge?

  Well, I'm going to stick with the renminbi. And as I say, I'm going to nail my colors to the mast. I'll almost certainly be wrong because I think every currency prediction I've ever come across has been wrong in some way. But I'd like to say, because I think it's so important, that I think next year, 2026, the renminbi will appreciate by 10% against the US dollar. And this will have enormous impacts all over the world, both in flows of capital into China and potentially, you know, the interest that Chinese people show in buying foreign imports as well. So that's my prediction, Alice. I know it's a bold one.

• 41:11James Kynge?

  I may not be right, but I do think that, you know, what I'm trying to get at is the the direction that I think this is going to take. I do think the renminbi will appreciate.

• 41:21Alice Han?

  Well, James, it's good to put your money where your mouth is. And so we'll see at the end of next year, whether or not we drink a toast to that trade. Okay, so my prediction is more on the back of French President Emmanuel Macron's recent trip to China, which felt very gaolist. You know, if you're a student of history and the 60s, you'll understand why. The fandom that he received in China was pretty incredible. But I think it's paint over a relationship that is deteriorating between Europe and China. Europe runs a huge deficit with China to the tune of $350 billion in 2024. I could see the Chinese offer olive branches, so to speak. There were Airbus officials there. Now, in the past, they've had Airbus officials in previous trade meetings, but I think that

• 42:06Alice Han?

  the Chinese could potentially offer the olive branch of buying more Airbus planes. I could see them dropping certain investigations into, say, European pork. Again, to help the relationship, they've certainly started to do this French cognac. But on the flip side, I sense in Europe, and I want to get your quick take on this too. My prediction in the European context is that we're going to see a lot more in the form of trade investigations, tariffs and non-tariff barriers against Chinese goods. And a more concerted effort to de-risk from China. I think the critical minerals part is a big part of this as well. So I think we're going to have a, you know, two-pronged nature to this relationship.

• 42:48Alice Han?

  On the one hand, China trying to make nice, and on the other hand, the Europeans on a totally different planet, where they're very, very concerned about the dependency on China.

• 42:56James Kynge?

  Yeah, I mean, I think that Europe is certainly getting very hot under the collar about the size of its deficit with China, its trade deficit in particular. But I think tariffs will be difficult for Europe. What will be easier and what I expect to see much more of is non-tariff barriers. And I think 2026, you know, which chimes with your prediction, may well be the year of non-tariff barriers in Europe, aimed at keeping these super hyper-competitive Chinese exports out to some degree.

• 43:30Alice Han?

  Definitely. Watch this space. And I know you're heading to Europe, so we'll definitely touch base next week. All right, that's all for this episode. Thank you so much for listening to China Decode. This is a production of Prof G Media. Our producer is David Toledo. Our associate producer is Eric Janikas. Our video editor is Ness Smith-Savodoff. Our research associate is Dan Shalan. Our technical director is Drew Burrows. Our engineer is William Flynn. And our executive producer is Catherine Dillon. Make sure to follow us wherever you get your podcasts so you don't miss an episode. Talk to you again next week.

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