Apple Inc. has taken a significant step to solidify its presence in China by opening a new research and development (R&D) center in Shenzhen, a strategic move to counter the growing influence of Huawei and safeguard its market share in the world’s largest smartphone market. The new facility, announced on October 10, 2024, marks Apple’s fifth R&D center in China and its latest bid to navigate the complex geopolitical and competitive landscape.
As Apple faces headwinds in China, this R&D center reinforces the tech giant’s ongoing commitment to the country, despite the growing rhetoric from U.S. politicians calling for a decoupling from Chinese supply chains. The Shenzhen center also quells speculation that Apple is planning to quit China in favor of India, a notion that has gained traction as the company increased its investments in Indian production. Instead, Apple appears to be expanding its operations in both markets, using a dual-pronged approach to maintain its dominance in global tech manufacturing.
Shenzhen, known as the “Silicon Valley of China,” has long been a hub for electronics manufacturing and innovation. Apple’s decision to establish its new “advanced application R&D center” in the Hetao Shenzhen-Hong Kong Science and Technology Innovation Cooperation Zone further strengthens its strategic position in China. The Shenzhen facility will serve as Apple’s main applied research lab for the Greater Bay Area, succeeding an older facility established in 2016.
This move comes at a time when Apple’s sales in Greater China, which includes mainland China, Hong Kong, and Taiwan, have shown signs of weakening. Greater China is Apple’s third-largest regional market after the Americas and Europe, but recent data reveals a decline in sales. For the nine months leading up to June 29, 2024, Greater China accounted for 17.5% of Apple’s total sales, down from 19.6% a year earlier.
Amid this decline, the Shenzhen R&D center will employ over 1,000 staff focused on hardware development, intelligent manufacturing, and testing for products such as iPhones and iPads. The facility will also collaborate with local suppliers to strengthen the supply chain, aligning with Apple’s strategy of building close ties with Chinese manufacturers.
This focus on Shenzhen aligns with comments made by Apple CEO Tim Cook in 2016, when he highlighted the advanced skill level of factories in the city. “We realized the skill level of Shenzhen’s factories was gradually leading other places in the world,” Cook said at the time. The decision to expand operations in Shenzhen demonstrates Apple’s recognition of the city’s continued importance in the global electronics supply chain.
Apple’s decision to bolster its R&D footprint in China comes against a backdrop of increasing competition from local smartphone manufacturers, most notably Huawei. In August 2024, Huawei surpassed Apple in terms of the value of smartphone sales in China for the first time in 46 months, according to Chinese consultancy CINNO Research. Huawei’s sales surge came shortly after state directives in several Chinese provinces banned government employees from bringing iPhones and other foreign devices to work, a development that dented Apple’s sales volumes.
For the third quarter of 2024, Apple reported a 6.5% year-on-year decline in sales by volume in Greater China, compared with a 4.9% increase in total sales globally. This decline has coincided with Huawei’s resurgence, as the Chinese tech giant continues to make inroads into the high-end smartphone market, particularly with the launch of its Mate XT Ultimate Design foldable smartphone.
Priced at over US$2,800, Huawei’s Mate XT Ultimate Design, launched in September 2024, boasts cutting-edge features, including a three-panel folding design and a 10.2-inch maximum screen size. Its debut preempted Apple’s launch of the iPhone 16 in China, signaling Huawei’s determination to challenge Apple in the premium smartphone segment.
According to the Huawei Central Newsroom, Huawei and Apple are now locked in a battle for dominance in high-end smartphones during China’s annual Double 11 shopping festival, which runs through November 11. All of the top 10 high-end smartphones sold on JD.com, one of China’s leading e-commerce platforms, are from either Apple or Huawei. This list includes the iPhone 15 Pro Max, iPhone 16 Pro Max, Huawei Mate 60 Pro, and Huawei Pura 70 Pro.
While Apple’s Shenzhen R&D center reflects its commitment to the Chinese market, the company continues to face scrutiny from U.S. lawmakers who criticize its business ties with China. Apple’s operations in China have been a focal point of U.S. political debate, particularly in the context of rising tensions between the two countries over technology and trade.
In recent years, Apple has been criticized by both Republican and Democratic lawmakers for allegedly capitulating to Chinese government demands. In October 2019, a group of U.S. senators, including Ted Cruz and Marco Rubio, wrote to Cook expressing concern over Apple’s removal of apps used by Hong Kong protesters at the behest of the Chinese government. Similarly, in 2022, Senator Josh Hawley of Missouri accused Apple of aiding the “totalitarian regime” in China.
Despite this pressure, Apple has maintained that its presence in China is crucial to its global business strategy. Apple’s chief operating officer, Jeff Williams, visited China in July 2024, shortly after the Chinese Communist Party’s Central Committee passed a resolution reaffirming the country’s commitment to “opening up” to the outside world. During his visit, Williams emphasized that over 70 of Apple’s suppliers operate in Guangdong province alone, highlighting the region’s importance to the company’s supply chain.
Of Apple’s 187 key suppliers, 157 have operations in China, and 56 are Chinese-owned, underscoring the depth of Apple’s integration with the Chinese manufacturing ecosystem. In contrast, only 14 of Apple’s suppliers are Indian-owned, despite India’s growing role in the company’s production network. While Apple is expanding its manufacturing capabilities in India, the country still accounts for less than 5% of Apple’s total revenues.
The opening of the Shenzhen R&D center is timely, given Huawei’s recent resurgence in the Chinese smartphone market. After facing significant challenges due to U.S. sanctions, Huawei has made a comeback with new products that have captured the attention of Chinese consumers. Its latest Mate 60 Pro and Mate XT models are seen as direct competitors to Apple’s iPhone 16, sparking fierce competition for the lucrative premium market segment.
According to Canalys, a Singapore-based market research firm, Huawei overtook Apple in terms of unit sales in the first quarter of 2024. This shift is partly due to Huawei’s focus on innovation and its ability to tap into growing nationalist sentiment in China. As the U.S.-China tech rivalry deepens, many Chinese consumers are opting for homegrown brands, boosting Huawei’s sales and challenging Apple’s dominance.
The battle between Huawei and Apple is expected to intensify during the Double 11 shopping festival, a crucial period for both companies as they vie for market share in China. With both brands dominating the high-end smartphone category, the outcome of this rivalry could have significant implications for Apple’s future in China.
Despite speculation that Apple might shift its focus away from China in favor of India, the company’s actions suggest a more nuanced approach. Rather than choosing between the two countries, Apple appears to be expanding its presence in both markets, leveraging China’s manufacturing expertise while also building a foothold in India’s growing economy.
India has emerged as an important production site for Apple, particularly in the wake of supply chain disruptions caused by the COVID-19 pandemic. The company has ramped up its investments in India, with plans to manufacture more iPhones in the country and diversify its supply chain. However, China remains Apple’s primary manufacturing base, with the majority of its suppliers located there.
Apple’s decision to open a new R&D center in Shenzhen underscores its commitment to maintaining a strong presence in China, even as it explores new opportunities in other markets. For now, China remains central to Apple’s global strategy, with the Shenzhen facility playing a key role in the company’s efforts to stay competitive in the world’s largest smartphone market.
Apple’s new R&D center in Shenzhen reflects its ongoing commitment to China, even as the company faces growing competition from Huawei and pressure from U.S. politicians to reduce its reliance on Chinese manufacturing. By expanding its operations in China, Apple is positioning itself to navigate the complex geopolitical and competitive landscape, while continuing to prioritize shareholder interests.
The company is exploring new markets such as India, signaling a broader strategy to diversify its production capabilities. However, with the rise of Huawei and increasing challenges in the Chinese market, Apple’s future in China remains uncertain. The coming months will be critical as Apple seeks to balance its global ambitions with the realities of an evolving technology landscape.
