Well, thank you all very much for coming to the talk. I'm very excited to be speaking today with Patrick McGee. He is not only a dear friend, but one of my absolute favorite authors. He wrote a book, a New York Times bestseller, that I guess was already introduced to the audience here, called 'Apple in China', and it's one of the best business books, in my opinion, of the decade and could not be more of the century, you said.
No, [laughter] no, I said thank you.
Oh, thank you. You're welcome. But it couldn't be more topical.
So, thank you. And I want to start with a very simple question, which is that there is sort of this popular story that Apple exploited China with cheap labor sweatshops, and your book, something I found interesting, it kind of flips that narrative, that actually maybe in some ways China exploited Apple in the same way that Prometheus, you know, stole fire and gave it to the humans. So I'd love for you to walk us through that reversal.
Yeah. One thing I want to be clear about, I don't argue that Apple didn't exploit China. I argue that there was mutual exploitation, if you will. So to put this in simple terms, I mean, China is run by an authoritarian, right, Xi Jinping. If it was so obvious that Apple is just exploiting China and doing nothing for the country, they wouldn't be allowed to operate there, right. So the answer as to why that's not the case is that, well, it's because the technology transfer that's taking place, where Apple is literally training up millions upon millions of people in the supply chain, in the most important thing for Xi Jinping, which is the high-end electronic sector. That's a certain exploitation where China is sort of rigging the rules in its favor to learn as much as possible. Now what's kind of funny is that China kind of stumbled into this, like to some extent there is a policy directive going back to Deng Xiaoping in 1976, where he goes to Singapore, he goes to Japan, he essentially realizes that the Marxism of Mao had failed, and he sees these other countries in Asia and he says,
give me some of that, right. But China's poorer than sub-Saharan Africa in the late 1970s, they don't have the money to do it. So in a sense they lean on the Chinese diaspora and they say, you know, to the Hong Kongers and later to Taiwanese and then later to the Japanese, like bring your expertise here, bring your capital, bring in the machinery and so forth. We want to build in China. So, you know, I have this new epilogue in the new paperback edition where I sort of argue that China recognized that their comparative advantage, you know, like what for Portugal is wine or what in England was wool, was people.
They had 1.4 billion people, right? They could sort of, you know, work, I'm avoiding the word slave away, right? But I mean really harsh conditions, right? And that there could be a partnership with these foreign countries to sort of exploit the labor. So that's absolutely part of the narrative. But as things go on, China begins to realize that this secretive company operating in the country is offering gargantuan sums to hundreds of factories by training up millions of people and by installing the most sophisticated machinery money can buy to build the most iconic product of the 21st century. And so China no longer believes by 2015 or so that Apple's exploiting the country. They realize that they've been able to turn the tables a little bit and that there's no other country on the planet capable of producing 230 million iPhones a year.
How do you put into context for the audience the scale of the manufacturing operations in China that Apple has put into place? And you know, one of the metrics that I remember from the book that just really stuck with me, and it was even in the intro of the book, so you know, I read at least that, is Apple pours $55 billion a year into Chinese manufacturing. Yeah.
And the CHIPS Act, the big Biden initiative, is a tenth of that size.
No, not a tenth. The CHIPS Act is $52 billion Congress authorized over the course of four years.
Okay, and Apple was spending roughly double that over a similar time period.
Okay. So if you think of like the CHIPS Act, you know, if people aren't familiar with it, that's like the signature act of the Biden administration to reshore manufacturing of semiconductors in America. Gina Raimondo, his commerce secretary, called it a once in a century act, right? Or once in a century investment.
China was receiving double that from one company every year for the past decade. So it was double that, double the total of the CHIPS Act, every year.
No, sorry, so $52 billion for the CHIPS Act over four years.
Over four years.
Apple was spending $55 billion per year, per year.
Since 2015. The number has likely gone up much higher, but I only rely on the documents I have. So I have internal documents that say $55 billion. Tim Cook famously goes to Zhongnanhai, the citadel of communist power in Beijing, in May 2016, and pledges to multiply that by five for five years. So $275 billion in inflation-adjusted terms. That's literally double that of the Marshall Plan. And the Marshall Plan was for 16 countries, you know, aid after World War II for Europe. This is Apple spending double the Marshall Plan on one country. And that's only 5 years, right? I don't know what the figure is for 2022 to the present, but it hasn't gone down, right? Because Apple revenues have only gone significantly up.
So the likelihood or like the back of the envelope math, if you say it. So this is just back of the envelope. I don't know for a fact.
From the birth of the iPhone to today, Apple has probably invested north of $800 billion into China.
Into its manufacturing ecosystem. This is machinery on the production line, construction of various stores and so forth. And then, really crucially, the training of 30 million people, not a typo, 30 million people, greater than the labor force of California, to get them up and running at Apple levels of quantity, quality, and of course doing so at cutthroat prices.
Amazing.
Yeah. So I guess maybe stripping out politics a little bit, you know, when a buyer, we're in a procurement conference, when a buyer compares a Shenzhen supplier to a domestic one here in the United States at this point, what would you say is the real gap that has nothing to do with labor?
Yeah. 'Cause it's not cost, right? You can definitely get things that are cheaper in China, but you could probably get things cheaper in, you know, I don't know, Bangladesh or depending on your industry, someplace else. It's not cost. It's the competence. It's the sort of 24/7 nature of the industrial juggernaut that is China. It's not even China per se, right? It's Shenzhen, it's Chengdu, it's Zhongshan, like there's all these competing ecosystems where actually at the local level, the governments are supporting their own initiatives vis-a-vis other jurisdictions within China. And so that's how, if you're a clever Western businessman and indeed a clever Chinese businessman, you can sort of play the governments off of each other to get the best deals, to get subsidies and so forth. And so for a long time, if you were Taiwanese like Foxconn or Pegatron or Quanta, you would be getting those deals. But as the Chinese learn how to do all of this stuff, those multinationals operating in China are being squeezed out in favor of what the Taiwanese call the red supply chain. So homegrown Chinese companies that know how to do this stuff. And guess what? They've got better political connections, right? So I quote someone saying, 'The faucet is being turned off for the Taiwanese and it's like, you know, free flowing for the Chinese companies.' So BYD, you know, was an Apple supplier since 2008. Luxshare is a major, sort of it's called the mini Foxconn, but it's worth more in the stock market than Foxconn despite having less revenue. And it's because Chinese investors completely understand that the state is backing Luxshare as the major homegrown rival that's going to become the juggernaut for contract manufacturing. So you sort of can't, I know you said the question separate politics, but in a certain [laughter] sense, you can't separate politics. You know, there's industrial policy on an epic scale, and you know, and it's if China is scary, it's scary because they're competent and they're just so large.
