ContributionThe paradox of the 'Apple Squeeze'

An Apple Store in Hangzhou, China / AFP-Yonhap

Last month, the Peterson Institute for International Economics published a report warning of the severity of the “China Squeeze,” analyzing the impact of China’s economy on low- and middle-income countries. The term refers to an international economic phenomenon in which China continues to hold a dominant position in global manufacturing, even though the sector is closely associated with low wages and the country’s income level has risen substantially through economic growth.

The accumulated history of international economics tells us that manufacturing has generally moved to places where wages are lower. China, however, has proved an unorthodox case where manufacturing industries do not flock to other developing countries with lower income levels, but instead remain in the country where wages have risen alongside economic growth.

Choi Youn-jin

The biggest factor behind this phenomenon is China’s iron grip on global supply chains. China still retains control over materials and components by supplying them at low prices, making it increasingly difficult for firms that depend on them to leave the country.

As the world’s largest manufacturer of industrial robots, China is also deploying robots of all kinds across its factories to contain the pressure of rising labor costs. Making their way into every sector, from high-value-added industries to food and apparel manufacturing, these robots are placing mounting pressure on low- and middle-income economies that depend on cheap labor.

It is reminiscent of the “China Shock” of the past, when China used low wages to take factories away from developed economies. This time, with the “China Squeeze,” it is developing economies whose positions are under threat. For manufacturing companies operating in China, this means finding themselves increasingly unable to leave the country.

The clearest example is Apple. Starting with its decision to outsource AirPods production to Luxshare in 2017, the American tech company began deepening its presence in China and now outsources much of its product manufacturing there, including the production of iPhones.

At the time, Chinese manufacturers willingly accepted deals with Apple that left them with hardly any profit. They compensated for the low margins through sheer production volume. Apple, taking full advantage of its position, squeezed Chinese firms to the point of closely supervising even the local component manufacturers supplying its contract assemblers, a practice observers dubbed the “Apple Squeeze.”

Chinese authorities, well aware of what was happening, turned a blind eye. They went further to support Apple by ensuring that its contractors could secure enough workers from their respective regions. In hindsight, those officials understood that this was how Apple would eventually become deeply entangled with China.

Now, the American tech firm is going so far as to turn to China for semiconductors used in its products, reversing its long-held stance that Chinese chips were not sufficiently qualified. Last Thursday, British business newspaper Financial Times reported that Apple was testing DRAM chips from ChangXin Memory Technologies (CXMT). The company is also reportedly lobbying Washington to keep CXMT off future sanctions lists drawn up by the U.S. Department of Commerce.

Will Apple eventually make it out of China? Whatever the outcome, it will not be an easy journey. The “Apple Squeeze” may serve as a paradoxical case of a company fixated on extracting profits that suddenly finds itself caught by the ankle, with far more to lose than it ever expected.

This article from the Hankook Ilbo, the sister publication of The Korea Times, is translated by a generative AI system and edited by The Korea Times.