Apple Inc.’s China business kicked off the Year of the Snake inauspiciously.
Revenue dropped 11% during the December quarter and iPhone sales plunged more than 18%. The Trump administration unveiled fresh tariffs on goods from its biggest manufacturing base, and it’s still unclear if the Cupertino, California-based company can get out of them this time around. Beijing, meanwhile, is reportedly mulling a probe into its app store fees and practices.
But it may have notched a much-needed win on Thursday: Alibaba Group Holding Ltd. confirmed it would be working with the iPhone maker to finally bring Apple Intelligence to China. The Information previously reported that Apple and the e-commerce giant had submitted a proposal to regulators. The company has launched its much-hyped AI features in the US and other jurisdictions, but has been plagued by delays in finding a local partner in a market where demand for personal generative AI services is red hot.
Investors saw it as a major victory for Alibaba, sending its stock soaring on the initial report. Still, it’s not clear if the long-awaited rollout of AI-enabled iPhones will be enough to turn things around for Apple in China.
Maybe the process will go over better with Alibaba, but it’s hard to imagine Apple Intelligence alone will be enough to overcome the company’s new web of obstacles as geopolitical tensions escalate. The AI iPhone hasn’t exactly lived up to the hype elsewhere. As my colleague Dave Lee puts it, the shared experience of many users who have gotten access to the features has been “annoyance.” The rollout has been notably un-Apple-like — staggered and imperfect — even with the support of industry leader OpenAI. Perhaps it’s a blessing in disguise regulators have forced Apple to take this slow in China.
An even bigger headache is Apple’s new, unwilling position as a bargaining chip in the trade war. The company was reportedly added to a list of US tech giants that Chinese officials can target as part of expected negotiations with the Trump administration. Within moments of the US’s 10% China levies kicking in, Beijing responded with a probe into Alphabet Inc.’s Google. It was largely seen as a warning shot given that Google has very limited business left in China. Apple, meanwhile, still gets a major chunk of revenue from consumers there.
It’s still yet to be seen if Chief Executive Officer Tim Cook will be able to broker his company out of the fresh China tariffs. Given Cook’s negotiating skills in the past, it’s likely he will be able to score some kind of exemption again. Even without one, analysts expect the hit to ultimately be manageable.
But that’s only if the trade wars don’t escalate. US President Donald Trump has long teased the threat of tariffs on chips from Taiwan. This would be painful: Taiwan Semiconductor Manufacturing Co. powers virtually all the processors in Apple’s smartphones.
These mounting US-China tensions could have more concerning ramifications. As one of the few American tech companies still operating in China, Apple has become the target of anti-American sentiment. Some of this backlash has played out in more Chinese consumers opting for domestic brands. It doesn’t help that these local companies, such as Huawei Technologies Co., are already offering AI features.
“It’s the most competitive market in the world,” Cook said on the most-recent earnings call when asked about China headwinds. He’s right: As Apple’s dominance over the smartphone market has eroded, Huawei has gained the top spot. And Apple’s closest competitors are all Chinese.
Bringing Apple Intelligence to China would be a good move, but it amounts to just one play in a new game of 4D chess. Apple will have to find a way to please Trump, Beijing, and notoriously frugal Chinese consumers.
On the plus side, if anyone in the tech industry was up to such a task, it’s Cook. He’s laudably managed US-China relations over the years by being as shrewd as a serpent and as innocent as a dove, as the biblical saying goes. He’s one of the few US business leaders with an active Weibo account, connecting directly with the Chinese public. Apple needs to do more of this, and has an ample opportunity next month at its developers conference in Shanghai. The sooner Apple brings its AI updates to China, the more likely it will be able to cash-in on Beijing’s recent measures aimed at boosting consumer spending.
Cook joined the rest of the tech elite in welcoming Trump’s inauguration. And Apple moved quickly to label the Gulf of Mexico as the Gulf of America on its maps app to seemingly appease the new administration. Such actions could generate goodwill when dealing with a famously transactional administration.
Apple has spent years walking a tightrope as it seeks to please all sides, while mutual animosity has all but snuffed out other hopes of Chinese and American consumer tech companies working together. Yet the recent DeepSeek frenzy showed that this divide may result in the US missing out. Even OpenAI CEO Sam Altman said this week that he is keen to “work with China,” adding: “I think that’s really important.”
An Alibaba partnership wouldn’t solve all of Apple’s China problems, but it would be a much-needed and mutually beneficial relationship. Perhaps it could serve as an example for policymakers that broader cooperation is possible.
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