Breaking Up With China Is Hard to Do
By Peter Coy
Sept. 30, 2024
https://www.nytimes.com/2024/09/30/opinion/american-businesses-china.html
It’s not an easy time to be an American multinational company that sells to or buys from China. As the governments of the United States and China butt heads, they’re pressuring companies to take sides.
Look at Ford. In January, the heads of two congressional committees asked the Biden administration to investigate four Chinese companies that they said were involved in Ford’s planned battery factory in Michigan. The committee chairs claimed that the companies had ties to the Chinese military, the Communist Party, the North Korean government and human rights abuses in China’s Xinjiang region.
Or look at Apple. As this newspaper has reported, “For years, Apple has bowed to Beijing’s demands that it block an array of apps, including newspapers, VPNs and encrypted messaging services.” Apple “also built a data center in the country to house Chinese citizens’ iCloud information, which includes personal contacts, photos and email,” The Times wrote.
The two companies — which once saw business with China as a major bright spot — are repeatedly forced to scramble to explain. Ford, for example, told Reuters it follows U.S. government regulations “across our business.” Apple C.E.O. Tim Cook talks up the company’s Americanness: “I know that a company like Apple could only come from America — and we are as committed as ever to giving back to our great country,” he said in Arizona in 2022.
An analysis released Monday by Strategy Risks, a 12-person business intelligence company focused on relations with China, lists Ford first and Apple third in a ranking of exposure to China among the 250 biggest publicly traded firms in the United States. (Second on the list is Carrier Global, the heating, ventilating and air-conditioning company.) Other analysts might rank the companies lower. You could make a case that Tesla, ranked fourth by Strategy Risks, is more exposed than Ford, Carrier or Apple. But the publication of the list nonetheless invites a look at the China strategies of two of America’s most famous companies.
The question that bedevils American C.E.O.s is how close to get to Chinese frenemies: companies that can be both friends as partners and enemies as competitors. The Chinese market is lucrative, but American companies that have entered it have given the Chinese valuable intellectual property — sometimes willingly, sometimes not.
As Chinese companies have caught up and in some cases surpassed American companies in technology, the new question for the American ones is whether to attempt to fight their way back to the forefront, at great cost, or cede the market to the Chinese and become their customers.
That’s the dilemma these days for Jim Farley, who has been the chief executive of Ford since 2020. The Wall Street Journal reported this month that Farley returned from a China trip in May amazed by Chinese companies’ progress in electric vehicles, telling a fellow Ford board member that “this is an existential threat.”
Ford has predicted it will lose around $5 billion on its electric vehicle operations in 2024. That’s in spite of high tariffs that block Chinese E.V.’s from the American market. In August Ford announced it was pulling the plug on an all-electric, three-row sport utility vehicle and delaying the rollout of a large electric pickup truck by about 18 months, to 2027.
Farley is steering a middle course with regard to China. Ford is taking subsidies from the U.S. government to make batteries in Michigan. But it’s licensing technology for them from China’s C.A.T.L., the world’s largest maker of E.V. batteries. That amounts to an acknowledgment of Chinese technological leadership, coupled with a commitment to in-house manufacturing.
Farley’s latest tactic for keeping up with Chinese competition is setting up a new operation in the Los Angeles area to design electric vehicles that will be entirely new from the pavement up, built around those new batteries.
It might work, or it might not. Some Wall Street analysts are skeptical. “Focus on your core,” John Murphy, a Bank of America analyst, said in a talk in June. He said Ford, General Motors and Stellantis, the parent of Chrysler, should focus on selling gasoline-powered trucks in North America, which remain highly profitable, while “ultimately investing in autonomous connected and electric vehicles over time.” (Ford says its Chinese operations have turned profitable.)
Apple, though still widely admired in China, is losing market share in smartphones and encountering political headwinds. While Apple has tried to remain in the good graces of the government, Chinese agencies and government-backed firms have banned their employees from bringing iPhones and other foreign devices to work. Jon Stewart’s show on Apple’s streaming service ended last year partly because potential show topics related to China and artificial intelligence were causing concern among Apple executives, The Times reported.
Apple has made moves to reduce its reliance on Chinese sources for parts but has made little progress. Nikkei Asia reported in April that Apple increased its use of parts from China-headquartered suppliers and Chinese manufacturing sites in 2023, while using fewer suppliers from Taiwan, the United States, Japan and South Korea. Apple said in March that it was expanding a research center in Shanghai and opening a new lab in Shenzhen, the tech hub near Hong Kong.
“Everyone has the same dilemma” of fearing over-dependence on China but also worrying about becoming uncompetitive if they pull out, James Andrew Lewis, a senior vice president at the Center for Strategic and International Studies, told me. “People are hedging their bets.”
“It would take Apple a decade to get out of China” even if it wanted to, Jeff Fieldhack, a research director for Counterpoint Research, told me. “It’s not just the building of devices. It’s the huge ecosystem of components.”
An Apple spokesman declined to discuss the company’s exposure to China. The company says it designs all its products in California and has more than 90,000 employees in the United States, versus about 16,000 in “Greater China,” which for Apple includes Taiwan.
If tensions between China and the United States continue to ratchet up, the pressure on companies that straddle the two markets will only intensify. There is no easy way out.