China is teaching the likes of Apple and Tesla a very painful business lesson - 5 minutes read




After years of ascending growth, some of the most powerful US tech corporations have started to slide hard and fast in the world's second-largest economy amid the new reality of doing business there.

Beijing has endorsed uber-nationalism. In turn, sentiment toward Western business has soured. That's especially so as domestic companies have stepped up as viable alternatives. And it's all created a dangerous race to the bottom to win over consumers.

It's no wonder US companies that once banked on this being the "Chinese century" are having to learn a very painful lesson about doing business in China.

The battle for tech supremacy

You need to look only as far as the tech sector to see how hard a time American companies are having in China.

Apple's been struggling to get new iPhones into the pockets of Chinese consumers, with data from Counterpoint Research showing that sales plummeted by 24% in the first six weeks of the year.













Apple announced the iPhone 15 at its "Wonderlust" event in September.




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Tesla, meanwhile, suffered a huge slump in shipments from its Shanghai gigafactory last month, with 60,365 vehicles shipped, Bloomberg reported. That's 16% lower than its shipments in January and 19% lower than the same month last year, data from the China Passenger Car Association shows.

This may not spark an immediate panic.

Apple's net sales in Greater China may have been down 13% in the last three months of 2023 from the previous year, but they still generated revenues of $20.8 billion. And Tesla hasn't been the only electric-vehicle company to get caught up in a sales slowdown.

But it does signal a real downward slide for two of America's largest companies in China. So what's going on?

iPhone anxiety

In Apple's case, there are a few things. Gene Munster, a managing partner at Deepwater Asset Management, told Business Insider that the decline did have something to do with "American products falling out of favor in China."

That has certainly been the case. Last year, the Chinese government banned the use of iPhones for officials, making it less appealing to have one. Investors responded by wiping $200 billion from Apple's value.

That ban coincided with the launch of Huawei's Mate 60 Pro, a locally made 5G smartphone that many saw as a breakthrough device that rivaled the iPhone's capabilities — despite export bans preventing the use of industry-leading US components.













The Huawei Mate 60 rivals the latest iPhone.




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Counterpoint's research shows that unit sales of Huawei phones climbed 64% in the same period iPhone unit sales fell by almost a quarter. "Both the US and China are becoming more isolationist. That favors domestic brands. With AI, that dynamic will likely intensify," Muster said.

In Tesla's case, a wider EV-market slowdown, which took shape last year, is likely to have been particularly felt in February, given the generally slower sales during the month's Lunar New Year festivities.

More broadly, though, the slide for both is a sign that China's battle with the US for tech supremacy is getting more serious.

For years, Chinese companies adopted a strategy of copycatting as they attempted to build consumer electronics, electric vehicles and other industries from the ground up. That meant trying to replicate what their Western counterparts did, often to an inferior standard.

That's not the case anymore. As Huawei's Mate 60 Pro shows, Chinese consumers now have a homegrown phone that offers an iPhone-like experience.

Local EV makers such as BYD are meanwhile enjoying a surge as they manage to win over consumers with vehicles that are much cheaper than Teslas.

In January, BYD reported a 43% rise in sales but lost its market leadership to Volkswagen, according to CarNewsChina. It had also cut the prices of its best-selling models by an average of 17%, Reuters reported.













Chinese EV firm BYD, which makes the Atto 3, is one of Tesla's biggest rivals.




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That battle for supremacy is expected to get a big push from Beijing, too.

When Premier Li Qiang set out China's 5% annual growth target at the start of the National People's Congress this month, it became clear how vital technology would be in driving that forward.

That means Beijing is expected to play a more active role in catalyzing the growth of its domestic tech sector — and squeezing any foreign entities that get in its way.

The Wall Street Journal reported that a directive known as Document 79 was being ramped up to push out Western companies. It asks state-owned companies in a range of sectors, such as finance and energy, to "replace foreign software in their IT systems by 2027."

How Western companies respond is likely to be closely watched, as China remains too valuable to lose hold of. That much was made clear when Suzanne Clark, the head of the US Chamber of Commerce, traveled to Beijing in late February to help normalize business ties.

"Normal," however, is set to look a little different from here on.



Source: Business Insider

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