Apple in China a book by Patrick McGee

In My Humble Opinion
1

Hi everyone,

I watched a segment last night of The Daily Show and Patrick McGee was the guest discussing his book Apple in China.

Jon described it as “Jaw Dropping” and I found it to be fascinating, but also sort of maddening.

Anyone else see the segment or read the book or otherwise well informed on the topic who could offer a more in depth discussion about it?

I feel sort of dirty owning anything Apple at the moment, but I know they aren’t the only corporation who behave badly.

Thanks for your thoughts.

2

You can point the finger at Apple but frankly they were just doing exactly what the “neo-liberal revolution” was compelling companies (and especially manufacturers) to do, i.e. offshore manufacturing to developing and often non-democratic countries under the thesis that democratic liberalization would follow from wealth and integration into global economy. And Apple was actually one of the later companies to jump on this bandwagon; through the ‘Nineties most of their production and virtually all final assembly of products was done in the United States even as other computer and electronic device manufacturers moved production overseas. It wasn’t until Steve Jobs returned and brought Tim Cook on board that they shifted manufacturing to overseas and focused on developing suppliers in China.

That Apple is basically the biggest player in developing all of that manufacturing and electronic design skills and infrastructure is essentially a consequence of having become such a large player in the premium mobile device market. That they also ignored the progressively more authoritarian nature of the Xi Jinping regime (as if China had ever been making serious moves toward democratic governance) is essentially a consequence of ‘shareholder capitalism’, i.e. the need to manage and reduce costs to maximize profits above all else in order to maintain investor confidence. The same thing could be said of the US petroleum industry and its investments in Putin’s Russia, which by the way continues through today, allowing Russia to maintain petroleum extraction despite sanctions.

The short-sightedness of allowing and even encouraging US companies to develop the technological prowess of an international competitor, especially in ‘dual use’ technologies that also have military applications (although there are very few electronics and advanced manufacturing capabilities that do not in some way have dual use applications) was as predictable as it was ignored in the rush for cheaper labor, access to new markets, and oh-by-the-way campaign contributions from foreign interests which is one of the few things that has bipartisan support by the major US parties. But remember in the ‘Nineties we were facing “The End of History” according to people who didn’t actually understand about history, and we could safely ignore any threats or future military competition.

Stranger

3

Thank you Stranger, I hoped you’d weigh in. I was really bothered by the whole thing.

Thank you for filling in some blanks for me.

4

Happy to discuss. Definately want to read the book, and may even buy it instead of waiting for a library copy. Hidden Forces podcast 12 May had a longer podcast, but the Colbert synopsis is better.

Basically, Patrick McGee seems to have done a pretty good job.

I had a front row seat at off-shoring to China. Lived in China, HK and Taiwan from 1985 to 2010. Not sure I would call it neo-liberal revolution, rather just your basic capitalism. Most companies tend to source from the lowest cost provider (to be more fair, the lowest TCO) and generally only pay lip service to “long term partnerships” with suppliers.

A good buddy in Shanghai would just cold call US based sales of any small manufacturer, and the pitch was “if you aren’t sourcing from China, then your costs are too high, and soon someone else that is sourcing from China is going to steal your market.” Worked pretty well.

There was no grand conspiracy on the US side or MNC’s, it just happened. Yes, the Chinese government (national and local) bent over backwards to make China attractive. Chinese cities and provinces competed brutally to see who could offer the best deal in terms of free factories, electrical supply, conducive labor requirements, access to transport hubs, export subsidiaries to the manufacturer, zero interest loans, trade loans, etc. I repeat it was a brutal competition within china to offer foreign companies the best deal.

The world never held China’s feet to the fire for WTO obligations. And foreign companies gave sweetheart deals (50-50 joint ventures, tech transfers, etc) in exchange for a crack at the Chinese domestic market.

I also worked at Foxconn for 4 years, and tangentially involved with Apple. I had a lot of colleagues that worked on the iMac, iPhones and the CNC magic that happened. They pretty much claimed that Foxconn had a much bigger hand in making Apple successful than Apple and/or McGee gives them credit for. YMMV.

5

That is essentially what neo-liberalism is; the basic premise that the wealth brought through minimally-regulated ‘free market’ capitalism will result in greater democratic freedoms, predicated more or less on the example of post-WWII Western Europe and the Pacific Rim nations like Japan , Viet Nam, and South Korea, but failing to account for the reality of corruption or a dedicated autocrat like Deng Xiaoping, Jiang Zemin, and Xi Jinping in China which would embrace the economic principles of growth-oriented capitalism without the political liberties.

As you state, there was no grand conspiracy per se, just a confluence of interests and opportunities that provided inexpensive labor and relief from ecological restrictions on critical materials while lifting the Peoples Republic of China into the top tier of high technology industrial nations.

Stranger

6

Yes. And also more broadly failing to recognize that the free-market mindset seems to lead inexorably to eugenicist beliefs — to wit, if the market is effectively a meritocracy, then the wealthy have more merit; ergo, observed success is evidence of innate superiority.

One wonders how the current crop of American supremacists will need to adjust their thinking after a few more years of China eating their lunch. But one does not, I suspect, have to wonder how this very same mindset will feed into China’s perception of its own success.

7

Appreciate the clarification. The world has changed since my economics degree in the early 1980’s. :rofl: Back then I had a class with at least one supply side architect and advisor to Reagan, before that was debunked in real life if not in the Maga sphere.

8

Hoping this thread stays alive. To use a stadium concert analogy, I was in the venue the entire time. In the stands most of the time, on the floor a fair amount, and once in a great while near the front row for a brief period. I lived in China from the mid 80’s until around 2010. Worked at Foxconn for 4 years before covid hit, schlepped Terry Gou around Seattle a couple of times to meet with the CEO’s of Costco, Microsoft & Amazon (and maybe I’ll tell the story of his youngest daughter sometime), worked in high tech for around 25 years, knew and worked with ex Apple people that were deeply involved, and maybe I’ll disclose more this summer after I retire.

I’m almost 100 pages into the book. Up to now largely a pre-amble. A couple of quibbles but not real criticisms.

  1. Patrick McGee probably has never been to mainland China, or at a minimum never spent real time there. He was an accredited journalist in Hong Kong and most likely not allowed to even visit China on a tourist visa (by his news organizations and by the Chinese government). I had an acquaintance with a WSJ reporter that was accredited in China, and IIRC it took about a year for his visa paperwork to be approved.
  2. He’s obviously knowledgeable, but I wouldn’t rate him a hard core Chinaphile nor China scholar.
  3. No idea what his language skills are like, but suspect beginner Mandarin or Cantonese at best.
  4. Patrick is also very light on Foxconn sources. Thus far it sure all sounds like second-hand information.
  5. FXN folks I worked with that were on the iMac team, the CNC team, iPhone new produce introduction would claim they were responisble for a lot more of the product innovation but gave the credit to Apple.
9

I want to read the book so bad but I know it’s just going to piss me off. So I probably won’t.

10

Seems like parts of the book might be… bullshit? McGee claims (to Jon Stewart) that they “invested” $55B in China in 2015, on “mostly … machinery” and some other things. But that’s not possible, since Apple only spent $11.2B total on CapEx in 2015:

He then somewhat contradicts himself and says that training costs are actually the dominant component. But subtracting the $11B leaves $44B, while median wages in China are around $900/mo in 2015. How much training does a basic factory job require? A month, max? So Apple trained something like 50M people in China just in 2015? Later he says it’s 28M total since 2008. And 3M at the moment, so I guess there’s a lot of turnover.

What about other stuff like Apple stores, etc.? Well, in 2024 their cumulative “long-lived asset” investment was only $4.8B:
Imgur

Another way of looking at it is cost of sales, which was $140B in 2015. Is it remotely plausible that $55B of that went directly to China? Doesn’t seem like it, since many of the most expensive components came from elsewhere, like the cameras (Japan), gyroscopes (Europe), and processors (Taiwan, South Korea). China was mostly getting the low-value assembly work at that point. Assembly isn’t 40% of a high-tech product.

Maybe there’s a way to square the numbers but they don’t seem reasonable as presented. These and a few other details in this and this thread.

11

I’m most of the way through the book. Agree there is definite hyperbole. and reading further in, he certainly does not even have a beginner’s knowledge of Mandarin Chinese (he provides examples with incorrect romanization and tones).

And I think he grossly downplays the importance to a manufacturer that there is in effectively “guranteed” volume from Apple. So few products have that concrete promise, vs requiring the manufacturer to bet that HP’s mid priced laptop is going to be a hit product.

What is considered Capex? I don’t know but suspect that all the machinery that went into China (for example the thousands of Fanuc CNC machines) was some kind of opex and not capex. I could be wrong. That said, it is well known that Apple cornered the CNC machine market with Fanuc for years, which effectively prevented any other device builder to manufacture unibody aluminum MacBook Air’s. This cost is a very large number, but probably some kind of opex. Apple definately pumped a lot of money into china, but Patrick MaGee thus far hasn’t shown the accounting forensic of what constituted the “real” investment.

What he does mention on p 276 is:
“Because a sizeable part of the wages Apple paid to workers across its supply chain was akin to training costs. And whereas an auto company trained workers in the setup phase for a new car, Capple was constatly innovating, teaching new skills and processes to refresh it’s mutifaceted product portfolio. And it wasn’t doing so in a joint venture or two, but with hundreds of suppliers.”

So, he counts the 3 million workers for the new product introduction (NPI) and ramp up phase. Which, to be fair can take 6-12 months. How many of these workers retained and used the training for other jobs? And to be fair, Foxconn and all the device builders have 15-30% monthly turnover rates. But certainly not clear to me the multiplying/cummulative effect that this represents.

12

15 years ago when I was interacting with Foxconn, I was told that FXN did the iPhone final assembly for about $8/phone.

I haven’t plowed through the apple financials, the book cites a line item “machinery, equipment and internal-use software.” This should be a sub-category to Property Plant & Equipment

13

Forgot to say thanks for the preliminary review. So… thanks!

Apple’s investment seems to be another form of risk reduction as well (from the perspective of the contract manufacturer). It’s one thing to lose a big customer and then have to fire a bunch of people. It’s another to buy a ton of specialized equipment and having it sit idle. Apple seems to take the strategy of buying that equipment for the manufacturer and then demanding an equivalent price cut. Apple takes the loss if the project doesn’t work out.

It’s a sort of weird hybrid between vertical and horizontal integration. I guess it works for them.

14

I have not read this book yet, but here is a link to the Daily Show segment in which Jon Stewart interviews the author about it and here is a gift link to the New York Times review.

15

Finished the book. The afterword cites 90% of the book’s material came from Apple related sources. It reads like it, and suffers from a unidirectional narration.

I don’t think Patrick ever interviewed in depth anyone from Foxconn, Pega or Wistron, much less someone hands on with an NPI ramp up. He certainly never spoke with Foxconn’s founder Terry Gou, or he would not have described Terry’s English fluency as poor (I didn’t dog ear the exact quote). Terry’s spoken English is somewhat painful to listen to, but I’ve been in meetings with Terry & Satya Nadella (and other execs from multiple companies) and Terry was just fine with the communication. His exec team might rephrase something Terry said, or repeated a point in English to make sure Terry understood. (I’ve spent probably two dozen hours in person with Terry at executive meetings, pre-meeting briefings, and schlepping him around to meetings).

The book also could use some fact checking. I don’t think an editor went through and made sure all the numbers matched. Nor did Patrick often put the numbers in a good context. It’s easy to make a billion dollars seem like a lot, but it’s a rounding error for a USD1 trillion market cap company with hundreds of billions in revenue, and that’s without context for the Chinese economy.

For fuck’s sake, would it have hurt to have anyone with basic Mandarin language skills to have reviewed the pinyin and translations? Don’t get me started on how Patrick obviously isn’t a Sinophile, likely never even visited mainland China (as a reporter in Hong Kong, he probably wasn’t allowed to), didn’t bother to learn the most basic building block of Mandarin language study (pinyin), and likely didn’t have someone with real China experience edit his China views.

16

Well, I’m disappointed that it sounds like Jon didn’t do his homework as well as he should have. But maybe that’s good news in this case.

Thanks for all the in-depth information.

17

Maybe he got a little too eager and jumped the gun after his Apple TV+ show was cancelled because he wanted to cover topics that Apple is sensitive to, particularly China.

18

Do many talk show hosts challenge the authors who appear on their shows? I imagine doing so is going to reduce sharply the number of authors willing to appear.

19

Yeah, I doubt many do. And unfortunately when they don’t get challenged, we get moments like this one on NPR. (Although granted that’s a performance artist, not an author.)

I get the feeling the authors need the talk shows a lot more than the talk shows need the authors, so I think it would be nice to see hosts in general be a bit more critical.

20

Patrick is a reporter trying to flog a book. As he said to Jon Stewart, who would have cared about a China supply chain book? But a book about apple funding more than the Marshal Plan into China in the past 15 years, well, hells ya that is interesting. How he gets to the Marshal Plan number is never laid out in black and white.

Net net, apple undoubtedly played a big and perhaps oversized role enabling China to dominate high tech manufacturing and supply chains. How much so, kinda hard to quantify.