This is a lot of show.
There's very little reason why Chinese developers should be paying more than those in Japan.
That can really benefit Apple by building goodwill with Chinese regulators.
The principal beneficiaries in the short term are the three big players.
The most outstanding winner would be the mid-sized one.
The real winner in this is Apple.
Welcome to the chat lounge.
I'm Tuyen.
Join me for a chat on U.S. tech giant Apple lowering its commissions in China.
Professor Doug Guthrie, the director of China Initiatives at the Thunderbird School of Global Management, the United States.
Professor Liu Baocheng, the director of the Center for International Business Ethics University of International Business and Economics China, and Professor Warwick Powell, Adjunct Professor, Queensland University of Technology, Australia.
It's a great pleasure to have you all back on the show, gentlemen.
So Apple has lowered its app store commissions, often referred to as the Apple tax in China.
To start, Doug, I understand you used to work as a senior director at Apple Shanghai.
So could you briefly tell us how the App Stores Commission model works?
Well so yes, it's so great to be here with you all and so thankful to be a part of this conversation.
This is an important moment and time for the global political economy and an important time for organizations like Apple and China.
So the app store commission is, you know, it's been at like 30 and they've recently lowered it to 25 and maybe 20.
But this is a tiny part of what the Apple profitability model is.
And so you know, Apple loves to have a position in which it has some commission from all of the places that it's developing revenues.
And so the app store's part of it.
But this, especially for China, is a small, small, small part of the issue.
The real issue with China is what Apple's relationship with all of the suppliers and with the Chinese government is.
And so it's very easy for Tim Cook to show up in China and say oh, my goodness OK, we're going to cut the commissions from 30 to 25 or 30 to 20 percent.
It's not a big deal.
This is not where Apple's profitability in China comes from.
It is bigger in the profitability for the world because the world is part of Apple's services and supply services are a part of it.
But Apple's most important relationship with China is its relationship with the supply chain.
Anything Tim Cook can do to make the Chinese government look like it's toning things down is going to be fine.
This is not going to cut Apple's revenues or profitability.
Probably you're saying that Apple can do more there.
Probably.
And you know, I think, that there's a negotiation position for Tim Cook, and I used to work with the leadership team, and so I've seen them do this stuff before.
This is not a big deal for them.
This is a lot of show.
Right.
So let's clarify a little bit about the figures.
Apple says it's cutting the standard rate from 30 to 25 and from 15 to 12 for smaller developers.
So Doug just mentioned it's not a big deal.
It's a tiny part.
Baocheng, what's your view there? significant is this reduction from a Chinese perspective, especially, you know, compared with the cuts Apple has made in other markets?
Well, I do agree with my colleague Doug that this is not really a significant deal for Apple in terms of their revenue.
And actually, that's really consolidated to their stance to further park in China.
So that can really benefit.
Actually, on the other hand, of Apple by, you know, building goodwill with Chinese regulators, because there has not really been tough mandate over them for structural changes and also the Chinese visitors you know talking about a weekly visitation of like 800 million, so that can also.
You know they gave a uh good gesture to those visitors.
And to mention that those, you know, the developers.
So i think now for some of the developers, particularly for the mid-sized one which is really struggling between this 35 to like the 30 standard commission and 15 reduced rate,
So they are able to wiggle within in between so that they can really enjoy some of the reduction in the commission.
So this is really beneficial structurally or selectively towards certain segment of the market.
Then both Doug and Baocheng said it's Small gesture but Warwick, I bet developers in Australia could be jealous.
I understand the App Store Commission rate in Australia is 30 for those digital sales and in-app purchases and 15 for also small business rate.
Yeah look, Apple's App Store commissions.
Of course a sore point for many smaller developers in particular.
And I think one of the interesting things about this whole issue is that the extent to which it is significant and the ways in which it is significant varies depending on the stakeholder involved.
From Apple's point of view, it's a drop in the ocean.
But from a politics management and a goodwill gesture management point of view, it was actually a relatively easy concession to make.
It certainly isn't a concession that they've made in a way that achieves parity with the situation in Japan, which I suspect will mean that there will be continued pressure from the Chinese community and through the government on Apple to come to the party.
There's very little reason why Chinese developers should be paying more than those in Japan.
And from a Chinese perspective, the idea that Japan is getting a better deal is probably something that would be seen how should we put it?
To be a little bit unfair and inappropriate.
So from Apple's point of view, no big deal, but an easy goodwill gesture.
From government's point of view, it achieves a win in that it got something out of the big corporation without having to twist the arms too hard or mandate anything.
So in that sense, the dynamic of the relationship between the regulator and the corporation remains quite healthy.
It hasn't become a nasty relationship.
But from the point of view of developers, every cent that they get to keep is welcomed.
And so we're looking at somewhere in the order of what 870 million or thereabouts back into the coffers of developers.
Obviously, some of the larger development houses will benefit the most, but if i was a developer i would be, of course, pleased to have received these benefits.
Let's not forget that five percent of course doesn't sound like a lot, but five over thirty is around seventeen percent, so a seventeen percent needs that.
So it really just depends on who you are in this little ecosystem as to how important this particular issue is.
Indeed.
Then, Doug, how does Apple decide what kind of rates they are going to charge?
It seems the rates vary from country to country.
Sure.
But just to go back to the comments that both my colleagues here have made, but just to push back a little bit from exactly what the situation with China is,
China is a special case.
So you know, there are sort of app store issues that they work with with many countries China and Japan and Australia, the United States.
But Apple's married to China because Apple works with 1600.
At least when I was there, We were working with over 1600 suppliers in China and they were all part of industrial clusters that allowed us to negotiate the production of products.
We were spending about 55 billion a year in China to produce the products that were going to the rest of the world.
And because we were working with so many of those suppliers and sort of helping to negotiate with those suppliers for kind of helping them be very efficient, we were able to get our profit margins down to very very, very low level.
And so what this meant was, when we were negotiating with the Chinese government, the Chinese government would have a sort of strong hand what we were saying, but we would have a strong hand in negotiation too, because we would basically say look, this is our most important supply chain production process in the world, and doesn't matter that foxconn has a plant in china.
That's just final assembly.
But we have a thousand six hundred factories that we're working with in china, and so then, in the case of china, it's a special case because, you know, this other stuff is sort of at the margins.
It doesn't matter nearly as much as how important the profitability is that comes out of the leveraging of the manufacturing supply chain in China.
And so if Apple goes from 30% to 25% to even 20%, it's marginal issues.
And so the brilliance of this move like Tim Cook flying over to China is he's able to sort of flex his muscles and say like Hey, we'll give you this, we'll move this down.
But I'm sure the behind the scenes conversations and I haven't been a part of those conversations for several years now, but I'm sure the behind the scenes conversations were and just please, don't touch our manufacturing supply chain.
That's the story.
Now, what's the criteria for Apple to decide the rates then for each country?
Well, i mean, i think those are negotiable.
Like you know, it's it's based on and again with other countries that aren't central to the manufacturing supply chain.
Those issues are negotiable, and so there are different approaches to how to think about it with respect to japan and australia and the united states and places in europe, but in china the negotiation, i think, is a little flimsy, because i think it's just OK guys, what do you want?
What do you want to make us make this look good?
And please don't touch the manufacturing supply chain.
And so you know, I think that that's him showing up in China and then sort of negotiating down just makes it look like he's giving in a little bit and it's fine.
You're talking about the manufacturers or the suppliers?
No, no, no.
There are two things here.
So there's the manufacturing supply chain.
And basically what my guess is is that Tim Cook is saying don't touch us in manufacturing and we'll negotiate down in the app store margins.
And so it's like a it's sort of a red herring, because basically it shows that he's negotiating and negotiating down As long as and again I'm not a part of the conversations anymore with them.
But my guess is that behind the scenes they're saying don't touch us.
Yeah, maybe these two parts are closely related, but today we'll focus on the app store commissions.
I remember about a year and a half ago, Apple pressured Chinese tech firms like Tencent and ByteDance to close payment loopholes that were bypassing its fees, even warning it could reject app updates.
So does this fee cut amount to a major concession than Baocheng?
Well, I think, after all, the Apple has been a price maker and also they have restrictive payment system.
So the structure is still there, but now they face a number of challenges.
So which really requires their self-adjustment.
So one would be the regulatory pressure.
You know Chinese government is talking with them very softly but very firmly.
That are before the tough mandate is really livid in comparison with many other countries.
So therefore, it is really a winning of face for both sides that they are ready to compromise on a small margin, but that also, you know, help them to build their goodwill with the government and branding in the Chinese market.
It's really like a sales they've been pushing.
They tell the whole Chinese market, okay, now we are reducing the price.
The other would be the rising competition within China.
Because right now there are clear the computations on the Android ecosystem, like Huawei, Xiaomi and the OPPO, et cetera.
So WeChat is also becoming a very strong substitute to them for ordinary users.
Now those developers are.
They still get the sort of stuck to West the Apple store, but in the meanwhile they can really have, you know, access to some of the substitutes, like in gaming and content, et cetera.
So all this is really there to push Apple to consider the alternative solution by one is really to balance their global pricing strategy, and the other is to continue to maintain a strong foothold in the market and also attract more of the traffic, if not really revenue, at the moment.
Yeah actually, China's digital ecosystem is a bit unique, you know, like you mentioned, some super apps and many programs playing a major role when compared with other markets.
So Warwick, I'm not sure if you're familiar with the app environment in China.
So to what extent do you think that ecosystem influenced Apple's decision?
Look, there's no doubt that the competitive dynamics contributes to the wider context.
But let's not forget that the Apple ecosystem itself is incredibly sticky.
I should know.
I'm talking to you right now through Zoom, which is running on my MacBook Air.
And I have a MacBook Air because it seamlessly integrates with my iPhone, which seamlessly integrates with my iPad, etc.
Etc, etc.
So the Apple ecosystem in and of itself is incredibly sticky by design.
So competition, in a sense, doesn't...
It certainly impacts future growth.
But I would think that the broader issues are the ones that Doug touched on, which is how Apple is able to maintain its global margins by having a stable supply chain in China.
That is far more important ultimately, than for going 850 million dollars.
We're talking about a company that generated what sales of global revenue?
In the order of 416 billion dollars um, or thereabouts, in 2025.
This modest concession is precisely that, so i think it's.
Its effects are more significant.
In other terms, it is about its relationship with government.
It is about the goodwill that it generates, principally with regulators, and it will be done in the context of the big ticket items that really matter to the corporation.
Yeah, you know the apps market, the vibrancy, the competitiveness and all of that.
Sure, there's a bit of play in there, but I think it's a relatively minor consideration, given everything else that matters to Apple about its relationship with China.
All right.
I think you all mentioned the pressure Apple is feeling probably from the Chinese authorities.
But what kind of pressure is that?
Just because the government is concerned about its monopoly status or anything else there?
Bo Cheng.
Yeah, I think overall China is really reshaping its regulatory environment to address the monopoly issues, particularly on those platform economy.
So we are really indiscriminately targeting those platforms like Alibaba was fined because they corner the vendors and the users with big money, and the tripcom group was also under very tough probing since last year.
Now apple is also, you know, being invited to have a talk, and so therefore, you know, apple is really drawing the lessons from other giant players like google or IBM within China, who really suffered a big deal in their revenue.
So now they do not really want to repeat that pass.
So now in the anti-monopoly law has been more seriously implemented and also fair competition law and then consumer protection law are there, being now fully implemented.
And so that, you know, a healthy, competitive environment is really required.
And plus that many of those Chinese players, particularly those developers.
They also talk with the Chinese regulators, as you know how others economies like EU Japan, South Korea, are addressing such subtle issue.
So because they eventually are the beneficiaries, however modern, they can really enjoy all of such talk, because they cannot really collectively boycott this whole thing.
And so therefore, they lobbied to the Chinese government that they need to do something.
So therefore, this is really a co-governed ecosystem that Apple cannot really afford to lose the Chinese market.
So they have to comply with.
Bearing that in mind, I think, Doug, you mentioned some 5% cut.
It's not that big a deal.
Then do you expect developers in China to continue pushing for further cuts to achieve a more level playing field with other peers?
And, you know, you mentioned Japan, the cap is roughly like 21%.
And actually in Europe, I think the typical reduced rates is under 20%.
So comparatively, China's 25 rate is still a bit higher.
Than Do you expect the developers to ask for more?
Well, so just to I love the comments that both the colleagues and my colleagues are making here.
But let me just give a push on a little bit of nuance here again.
All right.
Apple is married to China and the United States, more generally, through a couple of other companies like Tesla and Wal-Mart, are married to China.
Walmart is the single largest exporter from China to the United States.
Apple has 90% of its production happening in China.
Tesla has its biggest gigafactory there.
And so I think the bigger global context here is the global trade war.
And so I think that the Chinese government, I'm sure and again I'm not part of these conversations internally anymore, but I'm sure the Chinese government is starting to put pressure on a couple of its key players in the wake of the trade war situations and the tariffs and everything else that's going on.
And so the key thing is that pressures can be put to say we're going to make your lives a little difficult in terms of your commitment and marriage to the manufacturing supply chain.
And it is the most sophisticated manufacturing supply chain in the world.
And so, you know, again, the fact that Foxconn has a plant in Chennai, that's just final assembly.
That is not what Apple makes its profitability from.
Apple makes a profitability from working with more than a thousand suppliers in China and having them all compete with each other, And then those suppliers then go out and, you know, make higher margins from Huawei Oppo, Vivo and Xiaomi.
But then for Tim Cook to come over and say like OK, we're going to give you a little bit of a cut on the App Store margins.
It's pretty easy for Apple because this is not where Apple's money is in China.
Apple's money is in the supply chain.
And so I just think that You know there's an interesting sort of sleight of hand that's going on here, because I'm sure the Chinese government my guess is that the Chinese government is pushing Apple and a couple of other suppliers or a couple of other manufacturers who are key in the supply chain in China, to really be showing that they are committed to Apple and, I'm sorry, committed to China, and Therefore it's not that hard for Tim Cook to give 5 on the app stores.
That's different than in the situation in Japan and other places, because the manufacturing supply chain is not there.
Let me put it this way.
Don't you think Apple might be, or should be concerned that China is going to ask for more if it gives its ground so easily?
Well, I think these are complex negotiations and for sure.
You know the fact that Tim Cook, who is one of the important CEOs of the global political economy, showed up in China and you know kind of made hay over the fact that they were offering.
I'm sure there were very complex negotiations over this.
So for sure that everybody is worried, you know, about continuing negotiations in this situation.
But My guess is that there was a very complex negotiation that happened in this process and they gave the leverage to show that Apple was giving China what it wanted.
And my guess is that I mean, these people are very smart negotiators.
And so, like my guess is that they thought this was the amount that was going to be the right leverage to give them continue their strong position in the Chinese economy.
This has been the chat lounge.
Find out who could turn out to be the biggest winner of Apple's Move when we come back.
Stay tuned.
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We continue with our chat on Apple lowering its commissions in China.
Then let's talk a little bit about its impact.
I think Warwick mentioned Apple's move or how economically it may mean for Chinese developers.
Then to Baocheng, from your perspective, how big a deal is this financially for Chinese developers?
And How meaningful is it for the broader tech sector?
Well, generally it is good news for all the developers and eventually the end users for it.
But for China's market it's really a pyramid, you know, for those, you know top developers, they can really gain millions, if not tens of millions, on a yearly basis.
And for those mid-sized ones, as I mentioned, they are really there to swing between the higher rate of 30 before and now to 15.
And then they can really pick and choose whether to contain their download volume to be able to enjoy a lowered rate or, you know, they can really make some other choices.
And for those you know, the small ones like the indie one or the young startups, they actually get more attracted to this now that you know there is a lower rate and they have a mover advantage to join this whole team.
And so that can also actually discourage some of the competitors, because the upfront development cost for alternative apps can be far higher.
So now for Apple Store, it's really a cash call.
So by lowering such a moderate margin it doesn't really damage their revenue significantly, but also they can really recruit more of those developers.
But of course, for the Chinese government, it's really winning.
They can tell their constituencies, okay, guys, I got something for you.
So, of course, the Chinese users and developers.
They also look at how other countries are addressing such an issue, whether it's a blanket type of intervention with a mandate, or whether it's really a case-by-case or accommodative approach.
So they keep their close eye on it.
So that's really an overall happy picture, but there are a different level of beneficiation to different participants or stakeholders.
Then who do you expect to be the biggest winner, you know, to gain the most?
Is it developers, users or, like what Doug suggested, might be Apple itself or the Chinese government even?
Well, I think this is a win-win situation, but the most outstanding winner would be the mid-sized one, because they enjoy a far higher reduction of their margin.
They need to pay out of their revenue.
And hopefully they can also grow into far larger players.
And then also for those who are really very active and even proactive distributors, they can tell their downstream users okay, now I have a far lower rate.
And so they can really gather more or getting a better share of the marketplace.
So most outstanding beneficiary would be those mid-size users who can really move ahead to be big developers.
Ryan Woolwick, do you have a different choice?
Look, I think...
The principal beneficiaries in the short term are the three big players in the apps environment Tencent, ByteDance and NetEase.
And again, statistics and numbers are an interesting thing because it really depends on whose position you're in as to how significant or insignificant the relative impact is.
And no doubt the reduction will be welcomed and has been welcomed obviously by those who will save some of that money and put that to their own bottom lines.
And perhaps it will also encourage some of the medium-sized guys to be able to reinvest some additional funds in development as well.
But in the broader macroeconomic sense, it's relatively small beer at this stage.
And I would tend to think that, as Doug's been saying and I think this is right the real issues for Apple and China is actually related to manufacturing supply chains.
And that's where the main course is dealt with.
These other issues are relatively peripheral.
And the theatre and the performance of this particular announcement does give everybody something.
Every child is a winner.
Everybody gets something.
Plenty of smiles all around.
And Apple is able to continue focusing on its high margin activities in China, which actually comes out of its manufacturing capabilities, from which it sells products all over the world, not just to Chinese consumers.
But if it's like what you suggested, Apple is doing this and pour it in exchange for its stable manufacturing or supply chain here in China.
How long do you think this could last before it might need to cut further whatever fees it is?
Well, I think these issues are always ones that never go away, but they become more prominent in different contexts.
So sometimes, as we know, regulators can play quite dead on certain issues, even though at other times they become very animated on particular issues.
And yes, the global trade war, i think, is an issue.
I think this broader public policy push to intensify competition in China and to reduce the sort of protected moats of many of these platform economies is another part of the overarching story.
And I wouldn't be surprised if, in these discussions, everybody involved knows that at some point in the future there will be another discussion about these issues and they will need to be addressed on their merits at the time.
And from the regulator's point of view, I would be thinking, well, 30 to 25.
Yep, we can sell that.
That's looking OK.
But there will be room to move if we push a bit harder sometime down the track.
But there's no need to necessarily make everything difficult all at once when we can retain some scope for future discussions or, to put it less prosaically, to keep a little bit of leverage in the back pocket.
Okay.
And Doug, what would be your pick?
Like who's the biggest winner?
Well, I mean, I think the way that my colleagues here have said it is quite clear and I agree with everything has just been said.
But the real winner in this, in my opinion, is apple because again, they don't.
You know, it looks very good in the media that wow, they had to drop from 30 to 25 and but, as work was just pointing out, like this is a small part of what they're doing in china and so it's like a big number as you think about dropping 5 in the amount of money you're making from the apps industry.
But this is not where the game is.
The game is in the fact that they have such low margins of profitability that their Chinese suppliers are making because of how deeply embedded they are in China.
And so you know, the fact that they're the most, one of the most profitable and one of the most valuable companies in the world is because of that embeddedness in the manufacturing supply chain.
And so the winner to me looks like Apple.
And you know, maybe on the other side the Chinese government, because the Chinese government gets to sort of negotiate in the midst of a difficult tariff war.
And, by the way, it's not surprising that this timing of this happened because, as I know from my colleagues and research team in China, you know people were very much looking forward to the Trump visit in March 30th to April 4th.
And, you know, that suddenly has been put on hold for about five weeks.
And so I think the Chinese government is probably turning up the heat a little bit.
And so then what you get is you get Tim Cook coming over and Tim Cook gives up 5 on app store, and suddenly it looks like, you know, the chinese government is winning, and but apple also wins, because apple's probably going to be untouched in the manufacturing supply chain, and that's really where things matter right, some observers see this uh, as purely a setback for apple, but apparently you see some strategic upside there then.
Yes, How might this affect the?
I agree with Doc that it is really, you know, unintentionally as a sales promotion for Apple in China.
Right.
Then how do you expect this to affect Apple's revenue?
Yeah, like you all mentioned, it could be very little impact.
And what about its longer term strategy in China?
Maybe, Doug?
Well, I think my colleagues here have know the numbers better than I do in terms of what exactly five percent means.
And I think Warwick or one of you said you know eight hundred and seventy million or you know like, but the numbers are pretty small compared to what Apple's exposure is, to how important its embeddedness in China's manufacturing supply chain is.
And so, here again, I like that we're all agreeing on this, because it makes Apple look like a winner in terms of sort of giving a concession to the Chinese government.
But this is a relatively small concession with respect to what their exposure is in the manufacturing supply chain.
But they make China look like a winner.
And basically, Tim Cook gets to continue his relationship with the senior people in the Chinese government.
And it looked like he gave them a win in the midst of this trade war.
What about its longer-term strategy then?
It seems Apple used to be a little bit harsh, especially on its partners.
You can say like Tencent or ByteDance.
But in the future, how do you expect its longer strategy in China to maybe shift?
Like what kind of strategies will it adopt, Doug?
Well, I mean, I would just say, and I think this echoes what we've been talking about.
You know, when I think about China, I think about partnership.
And, you know, if you're just there to get cheap labor, you're not going to win.
But if you're there to be deeply embedded and build partnerships, and build partnerships not just with your manufacturing suppliers.
And those manufacturing suppliers again, are not just a few companies like Foxconn and Lens, but they are these industrial clusters that have helped build the manufacturing supplying of many many, many cities in China.
And so that partnership is really important.
And then continuing to be a partner with your other players, like Tencent and others that are part of the apps world, but then also with the Chinese government.
And so partnership is the big issue here.
And what it looks like to me is that Tim Cook showing up in China these last couple of days makes him look like he's committed to continuing to be a partner with the Chinese government and with many of his players in China.
And so my guess is that this is a win for Apple.
That's just my instinct.
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Bao Cheng, do you expect Apple to be softer or more more gentle?
Well, they don't have to, but just by playing fair.
First, they have to have a stronger hold in the Chinese marketplace.
And for that, the need to generate goodwill with the Chinese government regulators.
And, as I understand, they have been in constant dialogue with the Chinese regulators, either formally or informally, so that the communication is utterly important to maintain such a sort of relationship based on the understanding, if not full trust.
Second, they have to maintain their supply chain because those hardwares, from phones to iPads, not to mention the Apple computers, they are the carriers of their Apple store.
So therefore, they have to maintain a stronghold against increasing competition within China to deliver the hardware in order to sell their service and software.
And then they also are considering to build more strategic solutions in the software marketplace.
So to address those competitions, they can really also cooperate with those competitors in terms of the obstructing loopholes in the payment and also to generate a stronger distributional network within China.
So this is really a complex situation, but I think much is really dependent on the competitive landscape that's going to be unfolded in a matter of three or five years.
Right.
Right.
And Warwick.
Then under what circumstances do you expect Apple could, you know, play tough as what it did, like one and a half years ago to those big platforms?
That kind of days or all gone?
Well, you know, the extent to which you can play tough really depends on circumstance.
And the world has changed quite a lot.
But also I think it's quite clear that despite all the talk over the years of de-risking and all those sorts of things shifting manufacturing capability out of China, Apple cannot afford to be divorced from China period.
And the efforts that it's made in places like India really are cosmetic in the broader scheme of things.
If you broke down an Apple iPhone and you looked at the total value add and where the profit margins went.
I think Doug mentioned that the Chinese suppliers' margins are actually way for thin, and that's absolutely right.
Almost all of the margins is captured by Cupertino.
And so historically, Apple has been the dominant beneficiary out of its entire relationship with China.
It's not to say that China hasn't gained technology transfers, employment, et cetera, et cetera.
All of those things are acknowledged.
But if you looked at corporate balance sheet perspective, there is no doubt that Apple and its stockholders have been the principal beneficiaries of its manufacturing relationships in China.
Will that change going forward?
Well, it's possible, but I think these issues will always have to be handled delicately.
It's not in the interest of China to radically shake up what has been such an important and relatively successful marriage, but at the same time, the extent to which a foreign-owned company is will continue.
Capturing these kinds of margins out of a Chinese supply chain, I think, is going to become something that more people will ask questions about.
And, as those questions get asked, the sorts of micro performative concessions that have recently been made, 870 million out of global revenue of 160 billion.
Those sorts of modest concessions have bought Apple time and some goodwill, but I'm not sure that they will cut it in the future.
Then how would you evaluate China's approach compared with what happened in other countries?
We've seen
You know similar regulatory pressure in the EU Japan, South Korea and I believe also in Australia.
Look, China's approach has been quite incremental actually, and it leaves an incredible amount of room downstream for further discussions.
This is not an unusual approach, as the parties seek to find a way to quote, get what they each want unquote, without throwing a rock in the pond or rocking the boat too much.
And this approach has tended to serve parties well when they actually understand what's going on.
Apple has been incredibly successful over all of these years in navigating the intersection of politics, sentiment and regulation.
Far more successful than some of its other counterparts, who literally couldn't cope with this environment and vacated the market.
So Apple, I think, has a sensibility and the regulators respect that.
And because there is that sensibility, I think that and there's plenty of goodwill.
So, as hard as the negotiations are, it's quite clear that they've been entertained by parties seeking to achieve an outcome where they can both walk out the door and smile and say that they both achieved something important.
All right.
And lastly, let's talk a little bit about its global implications.
Look at the bigger picture.
So, over the long term, Could the debate over the Apple tax reshape the rules of the global digital economy?
To Baocheng first.
Well definitely, because one is that the security consideration is really on the top agenda of almost all regulators of different countries.
So that's something that they can really generate the level of trust because, look at China, for example, some of the government offices are really preventing the use of Apple phones, etc.
So that's, on the hardware part, you know, related with software of course.
So therefore, to generate trust is really the major task.
Uh, you know, to alleviate the security consideration of all market players.
Uh, that's one thing and uh, the other is that uh, they have to realize that the competitive landscape has been evolving on an accelerated pace, because definitely, you know now, any monopoly type of situation will quickly go to oligopoly and eventually it's getting fully competitive.
So therefore, as you mentioned, they used to be having a tough stance in China, but now, with more of the competition that is coming up, and then, you know, they have to uh soften quite a deal.
And third is that uh, the globalized landscape is really uh getting more, more murky.
People are talking about a total uh globalization, so with which they have a sort of uh know blanket type of a pricing strategy uh, you know, with price all across the world on the same uh level, but now uh, it seems that it doesn't really go that way.
You know, the more of the regionalization and more of the autonomy of certain economies are actually getting stronger on the agenda.
That gave the room for Apple to really to have a different pricing scheme with the different economies in response to regulation and also in response to the competitive pictures.
So you know, we can't really give a very certain prediction over what is going on in the next picture, but we can really identify those elements that can really impact the decision power of Apple.
But after all, they're really a commercial operation.
So therefore, you know, the revenue optimization while maintaining compliance will be continually their strategy.
All right.
Doug, your view here?
Let me I mean, I love this conversation and let me just raise three quick issues before we finish on time.
The first is it's important to note that we often think about China as a centrally planned economy and It's just being driven by the five-year plans that are coming out of Beijing.
This is wrong.
My favorite article and my favorite China scholar in years and years was Andy Walters' 1995 article called Local Governments as Industrial Firms.
And he saw this very early on.
China is a very, very decentralized system in which you have entrepreneurial local governments building industrial clusters and that have built the most sophisticated manufacturing supply chain in the world.
And for anybody to compete, whether it's through tariff wars or anything else.
It will take 40 years for the United States or for India to build similar manufacturing supply chains.
The second thing, my favorite economist right now, is Justin Lin.
And Justin Lin used to be the chief economist at the World Bank.
He got his PhD at the University of Chicago in neoclassical economic theory.
But he has come back with a new structural economics, which is very much about the balance between governmental control and market systems.
And it's brilliant.
And then the third thing, which is related to what Valium was just talking about, is that Chinese companies are thinking very much today not just about building their manufacturing supply chain, but they're thinking about going global.
The word chuhai, which means going out into the sea, is a huge word in China right now.
And so the very idea that Chinese companies are thinking not just about building the manufacturing supply chain and sitting on their laurels here, but are thinking about building in India and building in Africa and building in Southeast Asia, is a really big topic that's happening in China right now.
And so it's a really interesting time to be witnessing what's happening.
And I think we're all going to be sitting back and watching, but also, you know, different countries like the United States and India and Europe are going to be needed competing.
And so we need to learn.
We need to learn from China.
All right.
You've got several lessons out here.
But if you had to sum it up in one sentence, the biggest takeaway from the global tech industry from this change in China, what would it be Doug?
I mean, my main issue is that you know, and people often ask me about this question, and I often refer to a very simple answer, which is we are married to China.
There is no de-linking at this point.
So, whether we're talking about trade wars or tariff wars or anything else like we are so deeply embedded in China, whether it's through Apple or Tesla or many of the other technology companies, or even light scale industry companies like Walmart.
We are deeply embedded.
And so we need to just keep thinking about the fact that we need to partner and collaborate with.
You know, we are the two largest economies in the world and we need to collaborate with the second largest economy in the world.
That's it.
Baocheng, your one sentence takeaway, please.
Yeah, my takeaway is that the future of the digital economy will be further defined by the co governance between the host government and home government, and together with the business associations, etc.
So it's no longer a platform that is really totally dominating by themselves.
And now the competitive landscape can really quickly evolve.
So those who can really succeed are those who are able to quickly adapt to the new changing environment.
All right.
We'll wrap this up with Willick.
Data sovereignty.
And that will define how digital technologies unfold over the next 10 years.
We have gone through an era 30 plus years of relatively open global expansion, principally from American technology companies.
And that era has come to an end, in the sense that its ability to roll out um information infrastructure unfettered globally is not sustainable.
Countries around the world, china being one of them, is far more acutely attuned to concerns around data sovereignty than they've ever been, and how companies are able to adapt to that.
Regulatory expectations from all the different countries around the world will define the extent to which they can be successful.
And in adapting to that, they're going to also have to ensure ongoing interoperability.
So we've got competing demands, in a sense, but ones in which I think technologically savvy organisations will be able to overcome.
And on that note, we conclude this session.
Many thanks to Professor Warwick Powell, adjunct professor at Queensland University of Technology Australia.
Professor Liu Baocheng, the director of the Center for International Business Ethics University of International Business and Economics.
And Professor Doug Guthrie, the director of China Initiatives at the Thunderbird School of Global Management.
Good time and enlightening views.
Drop us a line anytime at radio at cgtn.com.
Tell us what you think.
I'm Tuyen.
Tune in for more chat at the chat lounge next week.
Goodbye.
The strong wind was howling and whistling.
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