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 only look 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 sales plummeted by 24% in the first six weeks of the year.
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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 China’s Passenger Car Association shows.
This might not spark an immediate panic.
Apple’s net sales in Greater China might have been down 13% in the last three months of 2023 versus a year ago, but they still generated revenues of $20.8 billion. And neither has Tesla been the only EV 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, managing partner at Deepwater Asset Management, told BI that the decline does 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.
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According to Counterpoint’s research, 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, will 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.
Meanwhile local EV makers such as BYD are 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, per CarNewsChina. It’s also cut the prices of its best-selling models by an average of 17%, Reuters reported.
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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.
According to The Wall Street Journal, a directive known as Document 79 is being ramped up to push out Western companies. It asks state-owned companies in a range of sectors like finance and energy to “replace foreign software in their IT systems by 2027.”
How Western companies respond will be closely watched, as China remains too valuable to lose a hold of. That much was made clear when Suzanne Clark, head of the US Chamber of Commerce, traveled to Beijing in late February to help normalize business ties.
However, “normal” is going to look a little different from here on.
