China Going after Apple

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We previously wrote about China going after its own business executives and the arrest of Huawei CFO breaking “the truce” with the U.S. Right on cue, it did not take long for the Chinese to respond to the arrest of the CFO in Canada. Today a Chinese court granted Qualcomm injunction against Apple (AAPL US), banning sale of Iphones. CNBC writes;

The court has banned the import and sale of nearly all iPhone models in China, according to a statement Monday from Qualcomm. Apple is already disputing the scope of the ban, saying it only applies to iPhones that run on an older operating system

The Fuzhou Intermediate People’s Court in China granted the two preliminary injunctions against four Apple subsidiaries in China. It relates to two Qualcomm patents that enable users to adjust and reformat the size and appearance of photos and to manage applications using a touch screen when viewing and navigating apps on their phones. iPhones are currently sold with the operating system iOS 12

This is probably one of the first shots the Chinese are taking against U.S. and Apple. One can argue that Qualcomm is also a U.S. company, but in this instance it is all about appearance. Markets and potentially President Trump cares more about the prized U.S. company Apple than about some supplier like Qualcomm.

Also, Apple supply chain is more than any other U.S. tech company exposed to China. Making hedging and taking out production out of China more difficult. Ben Thompson from Stratechery makes an excellent point;

Taiwanese manufacturers may own the factories in China, but Apple very much controls every part of those factories. That’s the thing, though: there is always a tradeoff. Because Apple demands so much control, hedging will for them be more difficult than nearly any other company.

This was the opening salvo from the Chinese side. If it continues, China could go after Apple’s supply-chain.

Earlier this w/e, the Chinese summoned both the U.S. and Canadian ambassadors to China to voice strong protest over Huawei CFO Arrest. CNN elaborates;

China's vice minister of foreign affairs, Le Yucheng, said the US ambassador to China, Terry Branstad, is being summoned over Beijing's "strong protest against the US's unreasonable direction to Canada of detaining the Huawei executive." Le said China would like the United States to revoke the arrest warrant against Meng and allow her to be freed.

China strongly urges Canada to "release the detainee immediately and earnestly protest the person's legal and legitimate rights and interests, otherwise it will definitely have serious consequences, and the Canadian side will have to bear the full responsibility for it," Le said in the statement.

What seems to elude the Chinese counterparties that the executive and judicial branches in U.S., Canada and most Democratic countries are completely separate and they are not able influence or affect each other.  As a result, things might continue to escalate as neither U.S. nor Canada will probably respond to treats.

 

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