A review of Apple in China: The Capture of the World’s Greatest Company by Patrick McGee
Patrick McGee has written a splendid business history that also manages to wade into geopolitics in a misguided way. The book’s underlying focus is the transnational division of labor that evolved in the digital electronics industries, specifically the relationship between Apple Computer, one of the world’s most valuable platforms, and “China.” I put the word “China” in scare quotes because the meaning of being “in China” changes as the book unfolds. First it refers to Apple’s use of Chinese firms, then it refers to Apple’s relation to the Chinese state.
The bulk of the book documents the powerful techno-economic logic that led to the development of Apple’s distributed supply chain, and why and how it became concentrated in China. It then discusses the ways Apple’s prominence in China’s economy led to some forms of political engagement with China’s Communist Party-controlled government. After this fascinating tale, McGee tries to characterize this interaction as a one-way “capture” that gives the CCP major leverage over the company. Apple, the book blurb claims, is “trapped in a relationship with an authoritarian state making ever-increasing demands.”
This interpretation is not one supported by the facts in the book. The “ever-increasing demands” the CCP allegedly places on the company are not really increasing and are not much different from the demands the CCP places on all foreign – and domestic – companies.
A success story
Reading the first part of the book, with its elaborate retracing of technology transfer and market growth, it is impossible not to admire the engineering expertise, design innovation and business operations Apple brought to bear. One also admires the eagerness to learn, efficiency and flexibility of the Chinese companies they worked with. Over a 15-year period, we see a painstaking but progressive process of working with Taiwanese contract manufacturers and their expansion into China to achieve unprecedented levels of quality, speed and profitability. When McGee is simply documenting this relationship as a keen business observer with a network of well-informed sources deep in the Apple organization, he is making a great contribution to our knowledge.
Apple benefited enormously from this relationship, but so did China. China received a huge transfer of knowledge and expertise that eventually made it possible for domestic companies to move up the value chain and compete in global markets. By 2020 they began to develop smartphone products competitive with Apple and Japanese and South Korean firms, though they were still dependent on U.S. chips and software ecosystems. McGee claims that Apple invested $55 billion a year in China for nearly ten years, a sum that makes the U.S. Chips Act, a rather lame attempt at U.S. industrial policy, look paltry. The point, which McGee seems not to fully realize, is that if you want to stimulate business investment and product innovation, nothing matches a globalized, open, competitive market. It can draw on the best services and inputs from anywhere in the world and achieve levels of scale and profit far beyond the capabilities of any national market. National industrial policy is a poor substitute.
McGee’s story of market-led technology transfer is a refreshing departure from the old Marxist refrain that the market economy hollows out and exploits less developed economies. Apple and Chinese electronics manufacturing benefited each other, and instead of creating monopolies, spawned new sources of competition and innovation. Large numbers of workers toiled for 12 hour days but relative to their impoverished conditions in rural areas were better off, and wage levels increased. Transnational specialization and division of labor benefited consumers in all countries as well. Consumers could not get enough of Apple’s products. Some of the biggest problems Apple faced in China, in fact, stemmed from the way the supply of its product fell far short of demand in China.
Yellow cows
The story of the “yellow cows,” an organized industry that arose to arbitrage the gap between Chinese consumers and the supply of iPhones, is one of the most interesting parts of the book. The yellow cows hired thousands of laborers to stand in line to buy iPhones, as many as they could get away with, for resale at a large markup. The demand for iPhones vastly exceeded their availability. The lines Americans remember outside Apple stores waiting for new product launches were nothing compared to the crowds and chaos that emerged daily outside the few Apple retail outlets allowed in China. The huge gray market in iPhones made the yellow cows an organized interest group with profound impact on the market and implications for warranty protection and quality control. Apple’s attempt to regulate this arbitrage was the first real “political” engagement, and sometimes confrontation, Apple had with the central Chinese government. McGee’s coverage of this process is fascinating.
Pro-globalization?
Reading the first two-thirds of Apple in China, one could easily come to the conclusion that the globalization of the digital economy benefits everyone, and national governments are in the process of messing it up by making the digital economy a site of tariffs, political conflict, cyber conflict, and military competition. McGee doesn’t draw that conclusion. He’s a business journalist, not an expert in political economy, so eventually, he fits the story into a the prevailing bipartisan neo-mercantilist narrative of Washington: China’s economic success in electronics and digital technologies is threatening to the U.S.; we should all be panicking because China has developed the ability to make high quality electronic products. Aligning himself with Trump and U.S. economic nationalism, he concludes that an efficient global division of labor and free trade should be subordinated to “national interest,” “national security,” and state power. McGee’s marketing of his book definitely benefits from riding this wave, but for critical readers, the signal of his meticulous research ultimately outweighs the mercantilist noise.
Now it’s true that geopolitical conflict is a threat to Apple’s supply chain. But it is primarily the securitization of U.S. trade policy and the threat of a Chinese invasion of Taiwan that have created that threat. Tacitly blaming Apple for U.S. government-led disruption of the world trading order, or for China’s designs on Taiwan, is a bit far-fetched. Yet McGee reinforces the idea that high-tech firms should base their investments on the political and military interests of the nation-state in which they are incorporated, rather than on efficiency and consumer welfare. In the long term, this is not a good path for the world economy to take. It traps us in a zero-sum game that serves only the interests of political rulers and militaries. Of course, China’seconomic development, which has been aided by foreign investment, has made its state stronger in some ways, just as American economic growth made its government more powerful. Does this mean the world should not have embraced the opening of the Chinese economy? Does it mean the world would be a better place if China was still an isolated, dirt-poor Maoist state? Sometimes all this hand-wringing about China gives one the impression that Americans are indulging in the fantasy that poor countries can or should be kept poor to keep established power hierarchies intact.
The concluding chapters of Apple in China distort McGee’s excellent research by fitting it into a neo-mercantilist narrative: globalization undermines national security, China’s economic development is a threat to the West, high-tech companies should be equated with their governments. This popular narrative now dominates U.S. foreign policy, trade policy, and tech policy. Yet tariffs, export controls and various other security-motivated trade blockages only exacerbate Chinese economic nationalism. Why shouldn’t China try to develop its own chip industry when the U.S. is obviously going to seize any opportunity to retard or cripple the capabilities of Chinese companies that are trying to globalize and become the next Apple? How can Chinese smartphone makers not develop their own, alternative software ecosystem when the U.S. government makes it illegal for Google to license Android to them?
Capture?
Setting aside McGee’s pandering to the current political zeitgeist, if you want to understand why manufacturers based in the U.S. have specialized in design, software, and digital product innovation, while relying on developing countries for manufacturing, this book explains why. If you want to understand why this kind of outsourcing enhances rather than undermines the ability of American companies to manufacture, Apple’s history shows why. If you want to understand the impact of this process of specialization and division of labor on the world, McGee documents (almost unwittingly and grudgingly at times) how this made American companies and Chinese companies rich and more innovative, and consumers better off. The book also shows how geopolitics is interfering with that productive process.
The basic theme of the book – that Apple has been “captured” by the Chinese state – is a distorted interpretation not supported by the book’s evidence. It is true that China has taken an authoritarian turn since the advent of Xi Jinping, but China has always been authoritarian. The current turn is a small change relative to a not very pleasant baseline. The problem of Chinese authoritarianism, however, has very little to do with Apple’s presence there and does not justify trade de-coupling.
Near the end of the book, McGee repeats the now-tiresome line that free trade with China was supposed to transform it into a liberal democracy, and now that China is not evolving into a democracy that somehow trade and cooperation with China is not such a good idea.
This is willful ignorance. Post-Tiananmen Square (1989), anyone who looked carefully into China’s political institutions and reform process would never have such expectations in the first place. I co-authored a book 30 years ago (China in the Information Age, 1996) that explained the difference between “reform” and “transformation” in socialist-communist thinking and showed how market reforms were intended to keep the CCP in power by keeping the people prosperous and thus pre-empt the need for political reforms . There is no excuse for anyone in 2025 to discredit trade with China by complaining that it hasn’t led to liberal-democratic political institutions. It has, however, made life better for millions of Chinese and made the digital economy more efficient and competitive for Western consumers. How the world deals with CCP authoritarianism is a matter for foreign policy, not trade policy. The prospects for political change in China are entirely a matter for the Chinese people.
