Tim Cook is in China at the moment. He's been opening a big store, and previous to that he was at the China Development Forum in Beijing, and there he was using some mollifying language. He said, "We are committed to collaborating with our partners across China and with all of you to make this vision of progress at Apple a reality." It didn't really seem to address the issue head-on, but I think it was supposed to mollify opinion in China that is turning against Apple to some degree. So to me, what is happening to Apple in China is that it's being pressured by the Chinese government to make commercial concessions, and it's already made one, but China wants more.
Welcome to China Decode. I'm Alice Han.
In today's episode of China Decode, we're discussing how Tim Cook's China visit highlights Apple's reliance on iPhone sales in the mainland, why Trump's Beijing summit delay exposes the broader context of US-China competition in the Iran conflict, and how China's museum boom is reshaping its culture. Now, 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, both the Shanghai A-share index and the Hang Seng share index closed down nearly 4% as investors scrambled to adapt to the possibility of tighter monetary policy. This was the worst day for the Hang Seng since the Liberation Day tariff announcement, no doubt affected by the Iran crisis. Precious metals company Zijin Gold and Shandong Gold Mining Group fell more than 5% after the price of gold tumbled, and tech giants Alibaba and Tencent both ended the day in the red. Before we go to the episode, a quick announcement. China Decode now has a weekly newsletter. We go beyond the topics we cover here on the podcast and give you even more data and analysis on the most important stories coming out of China this week. Subscribe at chinadecode.profgmedia.com. It's free for now, so be sure you get subscribed soon. That's chinadecode.profgmedia.com. All right, let's get into it. Last week, Tim Cook was in Chengdu, China for a high-profile Apple store event, marking the company's 50th anniversary. His visit underscored how crucial China remains for Apple even as US-China tensions rise and regulators in China push for a more open app store ecosystem. iPhone sales are booming in the mainland, up 23% so far in 2026, while the broader smartphone market shrinks. Meanwhile, Apple has cut its app store fees in China from 30% to 25%, though Beijing is signaling it wants more concessions. Despite Apple leaning on the iPhone for growth, Apple is still struggling to find traction in AI. James, this is an exciting topic because we did have, as you recall, Patrick McGee, who wrote Apple in China. So this is a topic that we've discussed previously. But what has been interesting to me relative to, I would say, the discussion a year or two ago is that Apple is not quite dead in China. You know, even though we have heard stories and seen data of manufacturing moving further south to India, for instance, or Southeast Asia, and that the market within China is shifting more strongly to the local variants, whether it's Huawei or OPPO, it seems that the strong performance this year and Tim Cook's trip to China suggests that there still is a market for Apple. I'm just not really sure how sustainable it is. But certainly I've seen from Chinese social media that this, especially the orange-cased iPhone that came out, iPhone 17, has been viral because it's known as the Hermes orange, like the Hermes designer brand. But what's your take on this, James?
Yes, I think China remains highly important to Apple. And to me, this story is really bigger than just Apple in China. This is a story that says, in this case, when China says jump, Apple will jump, at least to some degree. That's because Apple has invested so much in the China market and because Apple gets such a large proportion of its global revenues from China. And the reason why I think this is such a big issue is because Apple is not the only company experiencing these types of dynamics in the China market. In fact, there are lots of US companies and lots of European companies that are in the same boat, that China is so important to them that when the government of China says you've got to do this or you've got to do that, they would be rash to ignore such instructions completely. And as you mentioned, we had Patrick McGee on the podcast, and he said that basically China has captured America's most famous company. It's an extraordinary realization that Apple is worth about $3.7 trillion US on the stock market, but it isn't really the company's shareholders that actually call the shots, at least not in China. In China, it's the Chinese government that calls the shots. And that's why, as you mentioned at the top, Alice, Apple had to bring down the commission it earns on the Apple App Store for Chinese users. As I mentioned, Apple is not the only company that derives a huge proportion of its total global revenues from China. In the US, there are other companies in the same bracket. Qualcomm, the semiconductor maker, is one. Texas Instruments is another. Tesla, which of course makes cars and also energy generation and storage technology, Micron, Qorvo, Broadcom, all chip makers from the US, are in the same bracket, just to name a few. From Europe, ASML, the huge Dutch semiconductor equipment manufacturer, the car makers from Germany, VW and BMW, the big German industrial companies like BASF and Siemens, the Swiss luxury company Richemont, Rio Tinto, the mining company, all of these companies derive a very large proportion of their global revenues from China. And therefore, when the Chinese government says something or issues an order or an instruction to these companies, they would be very rash to refuse that instruction point blank. And I think this is a crucial aspect of the whole commercial and geopolitical dynamic that the Western companies get into when they start investing so much in China. But let's just return to the question of Apple. What happened in order was that earlier this month, the People's Daily, which of course is the mouthpiece of the Chinese Communist Party, criticized Apple for its monopolistic behavior. This came just days after Apple said it would drop its typical commission on the mainland App Store purchases from 30% to 25%. This was a big concession by Apple because it drops the app store commission to below what it is for US users. But it wasn't enough for China. The People's Daily editorial said that Chinese users and developers still face many restrictions that Beijing believes are anti-competitive. And we'll have to see what Apple does in the future. As you mentioned, Tim Cook is in China at the moment. He's been opening a big store, and previous to that he was at the China Development Forum in Beijing, and there he was using some mollifying language. He said, "We are committed to collaborating with our partners across China and with all of you to make this vision of progress at Apple a reality." It didn't really seem to address the issue head-on, but I think it was supposed to mollify opinion in China that is turning against Apple to some degree. So to me, what is happening to Apple in China is that it's being pressured by the Chinese government to make commercial concessions, and it's already made one, but China wants more.
Yeah, it's interesting. I agree with all these points, James. I would just take another vector of analysis to this and look at it from the vantage point of Chinese consumers, because if we had this conversation two years ago, I would have said, you know, the writing is on the wall for Apple. China is making amazing phones with amazing cameras. You know, you just look at Xiaomi, you look at Huawei, and they're making great phones for a fraction of the price. And they have, you know, AI chips installed as well. So super competitive in the AI domain as well. I would be worried if I were Apple, but I think again, and this begs the question, is this sustainable long term? There seems to be still a market for Apple. Maybe it's not the aspirational middle class, maybe it's the upper echelons of Chinese society that can still afford to buy an Apple iPhone, but the virality of it was really interesting to me. So in Chinese, the cheng, which is the word for orange, sounds like the word for success, cheng. So you know, in the year of the horse, a lot of people were talking about this orange-colored phone was seen as being very lucky or auspicious. So that was part of the virality certainly of the iPhone 17 that made it very, very successful as a model. But longer term, what I worry about is Apple's place in the AI ecosystem, because in the US too, I mean, Apple is behind in this horse race compared to the AI providers, but the AI downstream and upstream providers, whether it's the LLMs, frontier labs like OpenAI, Claude, or even if it's the data center providers like Oracle or Salesforce, it's not clear to me that they are going to take advantage of AI. And more importantly, in the Chinese context, how is it actually going to work? So as of yet, Apple Intelligence, so its AI, generative AI product that it offers on all its iPhones, which are available in the West, is not available yet in China. It's subject to approval. Now, apparently that approval process was delayed by the trade disputes last summer. So we're going to have to see whether this year they will finally get the green light. Because as of yet, these other phones, these other Chinese phones are going to be more advanced in the on-device AI market. And then the next question is how will Apple integrate some of the new moves in agentic AI that we're seeing? You know, we've just seen an announcement that Tencent's Yuanbao personal assistant or agentic AI has disappointed to the downside. And so, you know, that's obviously taken a hit in terms of stock price. But I think the next question as we see AI evolve, and we've talked about this previously, James, is how a device is going to embed these personal assistants, these agentic AI platforms, and I'm not sure if Apple is at the forefront of it. I think that a lot of the other Chinese providers are, but I think the statistics are pretty dazzling. 26% year-on-year growth in the first two months of this year. That's pretty good by Apple standards.
Those are great points you're making about Apple and AI in China. Chinese companies are really moving ahead quickly in AI. The number of applications, of different uses, startups in AI all over the country, it's just a fever at the moment in China. And it's quite possible, as you raised the possibility, that Apple could get left behind, particularly if its AI products are delayed for whatever reason from coming into the China market. I really do see that as a risk that you point out.
Yeah, super interesting. And just to continue what you said about how China still is really important for Apple's manufacturing, it manufactures still about 80% of Apple's manufacturing capacity globally. That's 55% of the MacBook products, 80% of the iPads, and over 80% of the iPhones. Now, there's a big push to get India to increase its share. But at least in the next few years, in the short term, it seems like they really still need China to manufacture Apple goods across the board. Okay, we'll be back with more after a quick break. Stay with us.
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Welcome back. Trump's postponement of his Beijing summit with Xi Jinping is sending ripples through global diplomacy and markets. Chinese officials are frustrated, and state-run outlets like the Global Times are mocking the delay, suggesting the US is using the conflict to pull China into policing the Strait of Hormuz. Meanwhile, behind the scenes, Beijing sees the Iran crisis as a chance to make political capital at the expense of the US. James, it's been sleepless nights for a lot of my friends who are oil traders or just traders in general. I'm curious how you've been faring the last few weeks, but I have been struck by the lack of real Chinese media coverage on Iran. I think even relative to Venezuela, there's been a lot of focus obviously on the new five-year plan that's come out, on some of the domestic data that have come out. But I've been struck how there hasn't been a lot of talk within Chinese media about Iran, and how China actually hasn't been that vocally critical of the US's campaign. Now, that may change if we in the coming days see Trump escalate in terms of boots on the ground to try to stabilize the strait or even decapitate the leadership in Tehran. But right now, I sense that the Chinese are playing a wait-and-see game to see what pans out. They've just sent a special envoy to the Middle East, to the region, to talk to the Gulf States, to the Iranians. I sense that maybe there are moves early on to see if they can be involved in a longer-term diplomatic peace process, but right now it seems like Beijing is playing a wait-and-see game. What's your view?
Yes, absolutely. I think China's strategy for the moment is to make rhetorical capital out of the US actions. And I thought in particular recently Li Qiang, the premier, made a speech at the China Development Forum, which is China's version of Davos. It's a place where CEOs of companies from the West who can be relied upon to praise China collect with Chinese officials and academics from the West who can also be relied upon to lavish praise on China. And this took place over the weekend in Beijing. And if you look at what Premier Li Qiang said in front of all of these assembled dignitaries in the Diaoyutai State Guest House, he said that China was committed to being a cornerstone of certainty and, quote, "a harbor of stability" in a world that is dominated by rising trade protectionism and upheavals in the rules-based international order. He did not mention the US by name at any point, but it was very clear that he was making a contrast between China's role and the role of the US. He also said, talking about trade, that he wanted to optimize and balance the development of trade and expand global economic and trade ties with the rest of the world. And to me, you know, although this was an oblique reference to the US, it really struck a very strong point against Washington. The other thing I thought was really fascinating about what went on at the China Development Forum was that the governor of the central bank, Pan Gongsheng, said that he sort of took aim at the US dollar, and he described, without naming the US, he described some countries' persistent trade deficits as being the result of a, quote, "international monetary system dominated by a single sovereign currency." So basically he's saying that all of the US trade deficits are partly the result of the strength of the US dollar. And he wanted to deflect criticism of China's $1.2 trillion US trade surplus in doing this. So I would say that this is a fairly blunt criticism of the US. China still doesn't like to call the US out by name, and I think it still wants President Trump to visit China even after he obviously postponed the visit that had been expected to take place on April 1st. But certainly I would say at the moment that China's trying to portray itself as this harbor of stability for the world as the US engages in the war in Iran, and the war in Iran threatens to spread beyond Iran itself.
It's interesting. When we talked about the five-year plan and the Two Sessions in a previous episode, we talked a lot about self-sufficiency and de-risking and supply chains. To your point, and when you quoted the PBOC governor, there is, I think, sort of a collision of events right now pointing towards this theme of de-dollarization. Whether it's, you know, the PBOC governor talking about it, it's coming up in Chinese media, I think, irrespective of what's happening in Iran. It came out of the five-year plan as well to increase, you know, CNY usage in trade settlements. I picked up on a particularly interesting data point. So China over the last few years has been working with the major central banks of Hong Kong, Thailand, UAE, and Saudi Arabia, so some of these Gulf states in the Middle East, to increase trade settlements via these central bank bridges, you know, digital tokenized cross-border transactions. And since 2022, we've seen a 2,500-fold increase in the use of these tokens through these mBridge bridges, so to speak. That's about $55 billion, and around, I think, 95% of that settlement of that sum is in CNY because China's been the big proponent of it diplomatically and through these financial institutions. And in the last couple of days, we've seen China announce that they've expanded the number of commercial banks that are going to use e-CNY. I think that one of the longer-term themes maybe from this crisis is that the Gulf States will become more and more like Russia. So if we think about the increase in yuan settlement between Russia and China since 2022, when Russia invaded Ukraine, that has been very favorable to CNY usage. We know we don't have the exact data on the ground, but there has been an increase in CNY usage in cross-border trade settlement, notably for oil and gas. I believe a couple of years ago there was a gas pipeline deal agreed by Putin and Xi in which there would be a 50/50 yuan-ruble split in terms of settlement. So I could foresee China actually benefiting from the morass and quagmire that the US has gotten itself into financially by increasing CNY usage in global trade settlement. Currently, according to SWIFT, it's about 8% of global trade settlement. That number could easily rise, I think, a couple of percentage points in the next couple of years, helped along by concerns about US hegemony, concerns about US instability, and the instability it's causing in other regions around the world. I'm curious of your view on this, James, because I certainly am seeing the more chatter about this in financial markets.
Yeah, I mean, I think you're dead right there, Alice. I think China is using this crisis in Iran, and obviously the conflict is spreading beyond Iran now, to damage US credibility on the global stage, to portray the US as a global wrecking ball, and as you rightly say, Alice, to make commercial capital. And one area that they're trying to make commercial capital, it's not immediate, but in the longer term, is to slowly replace the dominance of the US dollar with the renminbi. And, you know, these movements are kind of tectonic in nature. They happen slowly, but once they do change, then the whole global economic and geopolitical system changes in their wake. It really does matter a great deal what the world uses to, you know, to transact its trade and investment flows. At the moment it's the US dollar, but the renminbi is rising fairly strongly, and I think we can now envision a future in which the renminbi has a much greater share of global settlement, both for trade and for investment. So yeah, I mean, these are very big forces that have been unleashed. China is, I wouldn't say, enjoying the US's misfortune, but it is certainly capitalizing on the US's misfortune and the damage that the US is doing to its reputation.
Yeah. You know, it goes without saying on the oil and energy front, it is also at a disadvantage. China is right. On the oil and energy front, you know, if WTI goes north, continues to go north of 100, that is going to cause pressure. If supply chains in oil continue to be constricted, that is going to cause pressure for Beijing. But you're right, geopolitically and diplomatically, if we look at it from that vector purely, I think this has been an unforced error by the Americans in which that has caused an opportunity for China to gain leverage, not only just in the Middle East, but also in potentially US-China trade talks that are still ongoing because, you know, the more that the US is distracted and bogged down in the Middle East, the less likely they're going to be firing shots at China, you know, in trade and technology export controls. It seems, and this is, I'm just citing a Global Times piece that was really interesting that came out, I think, about March 15. That one op-ed in the Global Times says the US has set the fire and now they're asking the world to help it put it out and split the bill. I thought that that was an interesting image, and it sort of goes to the heart of how the Chinese perceive this is a mess of the American making, and that the Chinese do not want to get involved in any collaborative effort. And it reminds me to some extent what happened in '56 of the Suez crisis. You know, you had Britain, France trying to, you know, take control of the Suez Canal, another major choke point in Egypt. And they did not get the approval of then US President Eisenhower, who decided to not back, you know, old imperial regimes, but back the Egyptian president Nasser. I think a similar thing is happening now with the Chinese deciding that they're not going to back the Americans and collaborating to demine the strait or to unblock the strait and put pressure on the Iranians. So that's been interesting. Thus far, I haven't seen the Americans really react. I think that they're very much bogged down in what is happening in the Middle East.
Yes, I think so. And I think this gives China an opportunity to act as the statesman, the peacemaker. According to Wang Yi, China's foreign minister, he said that the urgent priorities now are firstly to curb the spread of the conflict and prevent other countries from becoming involved. Other countries like Saudi Arabia and the UAE, both of which are friendly nations with China, and both of which have been struck by missiles from Iran. And China's also called for a unified international push for an immediate ceasefire and further mediation efforts. And this goes back to what you were saying earlier, Alice. I think that China will portray itself as the mediator to end this conflict, or perhaps after the conflict has ended, to step in as a mediator between the nations in the region, and thereby it will portray itself even more as the peacemaker, whereas the US, as I said earlier, it will want to be portrayed as a kind of a wrecking ball. So I think China's strategy is pretty clear. Trump, of course, called on China to help assure the shipping through the Straits of Hormuz. And I think that the idea that China would cooperate directly with the US to further the US's objectives in anything to do with this war in Iran is completely pie in the sky. China will not want to do that because it wants to portray itself as separate and in opposition to what it calls an unjust war which has been started by the US. I think, you know, for China, they are keeping their eye on the propaganda gains that they can make from the US war in Iran.
Yeah. And just to back up your point of China being a peacemaker in the region. There is a history of this, right. China back in 2023 was responsible for the rapprochement between the Saudis and the Iranians that led to a diplomatic détente and a rapprochement. So they have a track record. I am on the side that you are on, James, is that they will play a part in any peace negotiation in the region, given the outsized commercial, economic, and diplomatic influence they have with a lot of the Gulf and Iranian players. You know, if I'm looking at this as from a realist perspective, you know, à la John Mearsheimer or Graham Allison, I am worried that the wrecking ball analogy that you used has actually empowered the axis of evil. If you think about the countries, the original countries within that nomenclature were Russia, China, Iran, and North Korea. You know, with oil prices going up for the conceivable future, that benefits Russia. Iran is hard to decapitate. We've probably replaced one leader with a more hardline leader, and China, to your earlier point, James, looks to be benefiting diplomatically. I'd be worried if I were Kissinger come back from the grave and looking at what Washington's doing.
Yeah. I mean, you know, I think it's too early to say because we don't know what the end of this war will be. It could be that the US wins and then the US gets to set the terms of whatever peace may follow that or whatever situation may follow that, and under those circumstances maybe the US emerges from this looking slightly better than it does at the moment. If the US can restore shipping in the Straits of Hormuz, the price of oil comes down, Trump gets to sound more like a statesman on the world stage, then maybe the pendulum swings back again in the US favor in terms of international opinion on this action. But at the moment, I think there's no doubt that China is making propaganda capital from this.
