Apple in China by Patrick McGee tells the story of perhaps the most important of these foreign investors, Apple Inc. Apple is one of the most valuable companies in the world today, with a market capitalization larger than France’s economy. While Apple is thought of as a quintessential American tech giant, the manufacture of their iconic phones and laptops are almost entirely dependent on one country: China. But despite China’s centrality to Apple’s manufacturing, the transition to China was gradual, unplanned, and far from inevitable.
Foreign Capital and Chinese Industrialization
McGee begins his narrative in Apple’s early days when manufacturing was all done in-house (initially with Steve Jobs’s pregnant sister assembling circuit boards in the living room). Apple’s manufacturing professionalized and improved as it scaled up, but its vertically-integrated model began coming under pressure in the 1980s. The economies of scale and flexibility of subcontracting proved to be far more effective at reducing costs, and Apple’s main competitors were quickly gaining ground by switching to contractors. At the brink of bankruptcy in 1996, Apple sold off its plant in Fountain, Colorado to the subcontractor SCI Electronics and shifted circuit board assembly operations to Singapore. With the outsourcing taboo broken and the surging popularity on the new iMac, Apple doubled down on its subcontracting model. In the name of maximizing efficiency to meet soaring demand, the company began dismantling its own factories to switch to manufacturers and suppliers in South Korea, Taiwan, and Mexico.
Initially, Taiwan was the most important of Apple’s offshore sites. Its strong tech industry and sophisticated suppliers were the only ones capable of delivering on Apple’s increasingly demanding designs. Paramount amongst these Taiwanese companies was Foxconn, which emerged as Apple’s most important supplier and the speartip of Apple’s entry into China. As Taiwan’s labor costs began to rise, its labor-intensive electronics assembly became less competitive. The island’s small population limited the size of its labor force and led to capacity constraints that couldn’t keep up with the voracious demand for Apple products. In search of abundant cheap labor, Taiwanese contractors like Foxconn began off-shoring production to China—and Apple followed.
Here is where the story of Apple in China truly begins. While there were fledgling amounts of FDI in China in the first period of reform of the 1980s, FDI truly skyrocketed in the second period of reform kicked off by Deng Xiaoping’s 1992 Southern Tour and continued with Zhu Rongji’s premiership in 1998. In 1988, FDI into China was only about $3 billion. Just 10 years later, this number skyrocketed to $45 billion, a 15-fold increase. Within this wave of FDI in the 1990s were Apple and Foxconn.