How China Captured Apple. Patrick McGee, Author, Apple in China

Here's a question I get a lot. How did China get so good so fast. People with front line experience in the People's Republic  talk about something called the China arc. Chinese leaders identify your company as the global leader. They entice you to invest in China. Chinese companies gradually extract know-how from you. Then they begin to compete with you inside China. Pretty soon, they are present in global markets, giving you a run for the money everywhere. The clearest example of this is solar panels, where Chinese now control more than 90% of global production. There are more: Magnets, batteries, ship-building and drones. Starting 10 years ago, China began accelerating its arc in two high value industries: Smart phones and electric cars.  Today, it turns out that Apple finds itself n the mother of all Chinese arcs, one with huge implications for the company's long term competitiveness. That's the captivating message from Patrick McGee, author of a tremendous new book titled: Apple in China: The Capture of the World's Most Valuable Company. For over a decade Apple consistently invested more than $50 billion into training Chinese suppliers? How come. Well, Apple wanted to be absolutely  to make certain that hundreds of millions of iPhones  ChIna built were the highest quality in the world. Flawless.  Yes, that's $50 billion. a year, a number, which McGee points out makes America's post WWII Marshall Plan look like chicken feed. McGee is a terrific guest, lively and smart with lots of fun asides. What's catfishing? Not what you think. And is the what's this about 300 million roving employees? McGee has answers, on the Driving With Dunne podcast.  

Episode Transcript

Speaker 1 (00:02):
We're top executives and crazy entrepreneurs gathered to talk about
the future of electric vehicles. This is a Driving with
Done podcast. Hello and welcome to the Driving with Done podcast.
I am your host, Michael Dunn. Now here's a question
that came up just this week in Detroit meeting with

(00:22):
senior executives at an automaker. How they want to know
did China get so good so fast? And it's not just
people in Detroit asking this question. Two weeks ago in
South Africa, Yes, same question a month earlier in Madrid, Yes,
we want to know. How did the Chinese go from
bad news Bears to the New York Yankees overnight? Well,

(00:45):
people with frontline experience in the People's Republic talk about
something called the China Arc. Chinese leaders first of all,
identify your company as best in class globally. They entice
you to invest in China. Chinese companies gradually extract know
how from you. Then they begin to compete with you
inside China. Pretty soon they are present in global markets,

(01:08):
giving you a run for your money everywhere, all at once.
So it's not as if things happen overnight, though it
seems that way. The clearest example of this is solar panels,
where the Chinese didn't invent the technology but now control
more than ninety percent of global production. Yes, a monopoly.
There are more examples magnets, batteries, shipbuilding, and drones. So

(01:31):
starting about ten years ago, China began accelerating this arc
into two high value industries, smartphones and electric cars. Today,
it turns out that Apple finds itself in the mother
of all Chinese arcs, one with huge implications for the
company's long term competitiveness. That's the captivating message from Patrick McGee,

(01:55):
author of a tremendous new book titled Apple in China,
The Capture of the World's Most Valuable Company. For over
a decade, Apple consistently invested more than get this, fifty
billion dollars into training Chinese suppliers every year. Fifty billion.
How come well, Apple wanted to be absolutely certain that

(02:17):
the hundreds of millions of iPhones China was building, We're
going to be the highest quality in the world, as
in flawless. Yes, that's fifty billion a year, a number
which McGee points out makes America's post World War two
Marshall Plan look like chicken feed. McGee he's a terrific guest,

(02:39):
lively and smart, with lots of fun asides. What's catfishing?
He asks, not what you think? And what's this about
three hundred million roving employees? How does that work? I
just know you're going to enjoy this conversation with Patrick McGee,
author Apple in China, on the Driving with Dune podcast Patrick,

(03:07):
thank you so much for joining me today on the
Driving with Done podcasts.

Speaker 2 (03:10):
My pleasure.

Speaker 1 (03:11):
All right, so let's speak started at the beginning. Cars.
You grew up in Calgary.

Speaker 2 (03:16):
Yeah, but there's no cars to speak for that narrative, Yeah,
I mean so, yeah, trucks, trucks, Yeah, gosh, there are
a lot of pickup trucks. I'm a bad Canadian in
the sense I don't fit the good, you know, Canadian
stereotype at all. I I don't certainly don't have a truck,
and I don't know any know anyone who. Sorry, I
don't know anything about the Stanley Cup or hockey or anything.

(03:37):
Terrible Canadian.

Speaker 1 (03:38):
This is okay, this is totally un Canadian.

Speaker 2 (03:41):
Yeah, I know, I know. Uh yeah, I grew up
in Calgary upburder. I studied religion at university, not theology.
But religion, so religion from an atheist perspective, you could say,
and I loved it. Became a total nerd in university,
which is not how I would describe myself in universe
and college, I'm sorry, in high school, but the problem
with studying religion is there's no job prospects after it.
So I basically fell into journalism because my only skill

(04:03):
set was reading, writing and thinking. And like the shortest
version of my career is, the financial crisis happened early
on and I was already an economics correspondent in Washington,
d C. Where I was sort of an intern, and
then I got plucked up to become a bond reporter
and then did that at the Wall Street Journal and
at the Watter Journal, I had a reputation for grabbing
the pink paper every day on the way in Ah.
The pink paper, yeah, the Financial Times. And I don't

(04:27):
know if something about that reputation leaked over to the FT,
but for whatever reason, the Ft sort of found out
who I was and they ended up sending me to
Hong Kong. I worked at the FD. I'm still with
the Ft, but I worked there really for ten years
before going on this book deal. So it's basically like
three years covering Asia and China, three years covering the
auto industry out of Frankfurt, Germany, and then four years

(04:49):
covering Apple. And so the basis of my book Apple
and China is really the combination of those three beats, right,
China supply chains and Apple and.

Speaker 1 (04:57):
Those years in Hong Kong would give you an incredible
view into what you were writing about because so much
of it is apples manufacturing in Asia.

Speaker 2 (05:07):
Well, I wasn't covering Apple at the time. Ah, it
was more an introduction to like the hardening stance that
Chijin Ping was adopting large but in particular in Hong Kong.
So I was there during what the Hong Kong Is
called the Umbrella Revolution, right, they were sort of righting.

Speaker 1 (05:22):
They were there during the Umbrella Revolution. That would have
been twenty fifteen.

Speaker 2 (05:28):
Fifteen, Okay, yeah, I mean it was amazing. I mean
I was in my late thirties and I felt like
I was looking up to people that were twenty two
years old because it was amazing. But it was amazing,
but it was heartbreaking because you knew it wasn't going
to work out, and I don't know to what extent
they didn't know it was going to work out, but
the fact that they were still fighting for democracy, or

(05:48):
for their rights, or for the autonomy of Hong Kong
anyway was like gut wrenching but inspirational to watch.

Speaker 1 (05:53):
Right. The deal in nineteen ninety seven was fifty years
of what they called one country, two systems, and it
was supposed to go fifty years before or something changed,
maybe it becomes entirely Chinese, but halfway through that it
went all through LS. Yeah, okay, break the agreement. All right,
let's now pivot. That's a sad story. Let's pivot to
something much more exciting. Your book called Apple and China,

(06:14):
and I love the subtitle the Capture of the World's
Greatest Company. So five years from now, you meet someone
and they go, yeah, I read your book Apple and China.
What do you want them to remember most about the book?

Speaker 2 (06:27):
You know, it's a tough question because my book is
pretty pessimistic. I mean, I don't necessarily argue something that
I'm trying to get you to agree with, but I
demonstrate that over the last three decades they really have
ensconced their operations into China and that because China is
so world leading, something that will probably be the book
of our discussion today. They're stuck. I mean, that's what
I mean, my captured. They can't go someplace else. They

(06:48):
can't build this in Pittsburgh or in India or at
Vietnam's just too small. So there's a certain sense in
which for like ego purposes right, for like the book
being accurate, purposes that, and hopefully five years from now
the thesis has borne out, they remain stuck. Maybe they're
trying to sales are falling, et cetera. But I'm not
much of an ego person, right, I don't want to

(07:09):
be a narcissist about this. Frankly, in an ideal scenario,
the book is laughably wrong because they've bifurcated their supply
chain so well, and things are dramatically better in that
they have this whole operation, the depth and breadth of
which I couldn't imagine back to today. But in five years,
maybe they're in India just way more than I thought.

(07:31):
So I would wish the greatest success upon Apple diversifying
its supply chain. That's not where I would so anyway.
So it's a funny question, right, But I mean the
question is am I trying to be pleased about this
in five years? I mean no, I'm pessimistic. It's like
if you wrote a book predicting war and then five
years from now that war didn't that didn't you know, endure,
you'd be happy about it even though you were wrong.
So that's kind of my answer.

Speaker 1 (07:51):
All right, I hear where you're coming from. So if
we think about it, let's go back to the beginning.
Apple manufacturing is really at the heart of your book here,
so all car apples of products are manufactured. One of
the fascinating parts I learned right out from the beginning
of your book was that Apple started by trying to
manufacture by themselves.

Speaker 2 (08:12):
Yeah, but it did not trying. They successfully did that
for twenty five years. The trouble is, you know, the
basic history of Apple is two guys named Steve and
a Garage found the company, and there is no electronic
supply chain at the time. I mean, basically, mainframes are
the computer of choice, if you will. Personal computer barely
exists if it exists at all, and mainframes can't be
built kind of overseas and then shipped over they're too big,

(08:35):
they wouldn't make any sense. And also IBM does an outsource.
IBM is proprietary about everything, and they basically own the
whole industry, right. I quote a young Steve Bomber saying,
IBM is the sun, the moon, the stars of the
of the of the computer industry. So it's the defact
it's the founding ethos of the company that you know,
Steve Wozniak is able to take apart a computer, you know,

(08:58):
redesign the circuit board, put it back together and it
runs faster. And Steve Job sort of picks up on
his friend's genius and he has a real vision of
bicycle for the minds, the idea that computers are going
to be this breakthrough device for humans, sort of how
we think of AI today perhaps. And he's a marketing
wizard as well. So I mean, the DNA of the
companies really is the two stems. The companies that are
founded a decade later don't have that same ethos because

(09:21):
what's happened in the interim is the IBM PC has
been born in nineteen eighty one, it quickly gets cloned
for a post of interesting reasons that are discussed in
the book, and the companies that are trying to compete
with IBM, they're all using Windows, they're all using Intel,
they're all building page boxes. So they are not competitive
on the esthetics or the design of the computer. They
only care about costs really and driving down costs. And

(09:44):
so they begin working with all these suppliers, contract manufacturers,
but also component suppliers, and that's what gets globalized. That's
where Japan, Korea, Taiwan all get involved. And Apple is
the last holdout. And by nineteen ninety six, after the
release of Windows ninety five, Apple no longer deserves is
a premium that it's been asking from customers, and they
are days away from bankruptcy. The book reveals for the
first time that they even hired a chapter eleven lawyer.

(10:07):
I mean, that's how dire the situation was.

Speaker 1 (10:09):
This is before Jobs comes back.

Speaker 2 (10:11):
This is before Jobs comes back. And you know, I'm
glad you mentioned it because Steve Jobs is such a
massive figure in the history of Apple that if he
says something happens some way, you know, through the wallster
isaacs in biography or something else, that's how we define
Apple's trajectory. Right, So he would say that nineteen ninety
seven was the worst year for Apple, and that they

(10:31):
were ninety days from bankrupcy. Nineteen ninety six, it's easily
the worst year for Apple. But because Steve Jobs isn't
there yet, that doesn't really fit his narrative. I'm not
trying to discount his genius or his his I mean,
if Steve Dubs didn't come back to the company, we
wouldn't have a company named Apple today, certainly wouldn't have
an iPod, and if you don't have an iPod and
have an iPhone, et cetera. So Steve Dubs is absolutely instrumental,
but it's his predecessor, Gilimilio who makes three major decisions

(10:53):
in nineteen ninety six. One has to do with finances,
one has to do with adopting a global outsourcing strategy,
which Apple had never had before, and the third is
the hail Mary of bringing back Steve Jobs. So the
thing that he's so successful in doing is actually his
own demise as well, because Steve Jobs is never going
to be number two, especially not anywhere, but certainly not
the company he founded. There's then this like seven year

(11:15):
experimentation phase that nobody had really written about before, where
it's not just like Steve Jobs comes in, you know,
hires Tim Cook as an operations expert, and then we're
off to the races in China. That's it's like a
seven year story where the iMac, the translucent iMac, it's
such a breakthrough product. Without that, the company fails. I
mean they're going to be bankrupt instead. It's wildly successful.
But it's built by LG and Korea, and LG also

(11:38):
builds it in Wales and in Singapore, not Singapore, that's
where Apple had operations, Wales and Mexicali. And for a
variety of reasons, both of it's a great strategy, but
it's a total failure. And the significance of Tim Cook
is that he brings on fox Con, who also replicates
this triple continent strategy, because this is what Apple did
when it was manufacturing things themselves in Singapore, Whales and

(12:01):
the United States. And so Foxton comes on board. Fox
On's Taiwanese. That's really important. But they have these massive
operations in mainland China, and then they also set set
up shop actually acquiring a company the Czech Republic that
was called Tesla. Just coincidence, state backed company that used
to build radar and missile No, yeah, radar for Iran
of all of all places.

Speaker 1 (12:23):
Right, I remember reading that part of We're in Where
was that in Czech or in Poland?

Speaker 2 (12:28):
Where's the Czech Republic? Yeah? PARTI piche. And then they
also built in Fullerson, California, So just because of its
proximity to Kupertino old compact facility that they bought. So
there's this whole narrative that people aren't aware of. And
then the first iPods are They're built in Taiwan. And
so you have like eight or nine countries involved in
this period between nineteen ninety six and two thousand and
three before China just begins to win out. I mean,

(12:49):
if you're looking at things on an Excel sheet, as
Tim Cok is prone to do, the abundance of the labor,
the hard workiness of the labor, the rates of the labor,
China is just the place to go. And it's not
that someone that Apple makes a decision yep, let's move
everything to China. It's that all the suppliers themselves are
moving to China, and Apple just sort of navigates that
challenge better than anybody else. The line I like to

(13:11):
use I don't think I use it in the book,
and it's it's unfortunate because it is a good line.
Is that in the same way that Apple is late
to MP three players or late to smartphones, but they
just do better than everyone else, writ large, that is
the story of their supply chain. They are late to outsourcing,
they are late to moving to China, but they do
better than everybody else.

Speaker 1 (13:27):
And did Apple select fox Con? Do you feel or
did fox Con select Apple? Oh? I like that question.

Speaker 2 (13:34):
I think it's absolutely the case that fox Con recognizes
something in Apple. I don't have this direct but my
guess is that Terry Gwoh, the founder of fox Con,
is very intrigued when Tim Cook moves to Apple. Because
Tim Cook is this procurement executive at IBM for about
twelve years and then he's doing a couple other things,

(13:56):
and then he finds himself a Compac. And this is
at a time when Compac is the king of the club.
It's the world's biggest PC maker, and fox Con is
working with them, and so Tim Cook and Terry go
know each other. He's only there for six months and
he leaves to go to Apple. I mean Apple has
just been on the magazine covers of the fall of
an American icon. It's a company that's about to fall apart.
And the combination of the iMac esthetics and it becoming

(14:19):
the world or the America's best selling computer, and the
combination of Tim Cook this like no nonsense, you know,
calculating figure going there. I think that intrigues the hell
out of Terry Guoh. I don't know that for a fact,
that everything put puts things in that direction. And he's
the one who calls Tim Cook when LG has these
problems in Wales and in Mexico and says, we can

(14:41):
LELP you fix this, we can help you fix this
a chance. And foxtone is not a big entity at
this time. They've got ambition and they've been around since
nineteen seventy four, and they've been in China since I
think the late nineteen eighties, and they're building the dormitories
and all this kind of stuff. But you know, the
coon in fox Con is for connectors. I mean they're
just putting together these little electronics you know that connect
things within the computer. They're not a major assembly partner,

(15:03):
but they choose they choose Apple, and they choose Apple
for a really interesting reason that I don't think it
had really been documented before, which is that Apple trains
the hell out of its suppliers because unlike everybody else,
they do not chase cost, they chase quality. And the
problem with China at the time is they don't have quality.
I mean, twenty five years ago, it made in China

(15:23):
was synonymous with poorly made. And Apple, more than any
other entity on the planet, changes that. And that sounds
like a ludicrous claim, and I understand that. But the
reason they have to change that is because they see
the value of what the Chinese are offering. They see
the value of the industrial policy, how quickly they'll build buildings,
and how many millions of people will come over from
the migrant, sorry the microcommunity in the hinterlands to come

(15:46):
over to places like shen Jen or Sujou or Shanghai
to build this stuff. But they all need to be trained.
They don't know how to build it, and Johnny Ive
is coming up with these crazy designs that really make
no sense to anybody. It doesn't matter if you're building
Dell computer for ten years. You don't know how to
build an iMac. You don't know how to build an iPod.
They're doing something else. And so this unit of people
called Manufacturing Design or MD, with an Apple, their whole

(16:08):
job is to go over and train the component makers
and even do the production processes, even the software for
those production processes to mount what ends up becoming billions
of dollars worth of machinery. This is like the untold
story of manufacturing or Apple as a manufacturing and giant,
and I compare them to Uber right, Uber being the
biggest taxi provider in the world without owning any cars.

(16:29):
Apple figures out the secret sauce of how do we
become a world leading manufacturer without owning any factories?

Speaker 1 (16:34):
What came through to me in the book and I'd
like to hear your insights on this. Your point of
view is it seemed like the people on the front
lines from Apple who are doing this training were under
such enormous time pressure to deliver that no one really
had the presidence of mind to think, are we creating
a monster here in China? Are we teaching? We're training

(16:55):
the hell out of our supply base. They're all in China.
Aren't we becoming overly dependent on them? There was no
time to think about that. It was just meet the
next deadline. Is that what you saw absolutely?

Speaker 2 (17:05):
I mean you have to understand that the Apple engineers
flying over to China, you know, frequently and sporadically, are
under such pressure that they're often doing sixteen hour days,
eighteen hour days. They're sometimes sleeping at the factories, like
at the end of a production line and a sleeping
bag or something. They are not pontificating matters of state
and learning Mandarin and really tracking the Chinese government. They're

(17:25):
not living in the country. They're just going there for
short trips. And you know, they're under such pressure that
the marriages of the engineers are they're losing engineers through
attrition because people's marriages are falling apart, and the engineers
joke about that they don't now about what was called
the DAP. The DAP the Divorce Avoidance program, and this
is like various measures to sort of make it understood

(17:47):
that like Mike's not coming into work today because his
marriage is on the line. Given a break, but then
it becomes the fact that like, actually we really need
Mike in the factory, so like give his wife ten
thousand dollars every time he has to go to China.

Speaker 1 (17:57):
That jumped out to me ten thousand bucks conversation. He
calls back to his wife, he goes, bad news, I
got to stay here for days. Good news. It might
be a tense spot for our family.

Speaker 2 (18:07):
Yeah, exactly. And you know, I had someone say, never
mind the divorces, you need to look into the deaths.
And I was like, really taken aback because to me,
the divorce thing, I mean, I guess it's not funny,
but it was a funny idea in a sense. You know,
it's not funny if you're really considering the broken marriages.
But then someone said, like, you know, you need to
look into the people that were dying because they were
under such stress. And the craziest thing in the end

(18:29):
of the chapter is that Steve Jobs attributes his own cancer,
his own death to him leading both Pixar and Apple
in nineteen ninety seven and not you know, get he
got to such a point he was working so hard
that he couldn't speak to Loreene Powell Jobs, his wife,
when he would get home, and he said, that weakens
my immune system so much.

Speaker 1 (18:48):
I think that's how the cancer crept in.

Speaker 2 (18:49):
Hmm.

Speaker 1 (18:50):
Wow, all right, So wouldn't that have been going back
to these guys on the front line. They're under norris
pressure to meet deadlines. Isn't that Tim Cook's job then,
way about ten years ago to say, wait a second, strategically,
where is is headed? Did were there moment in time
when Tim Cook had second thoughts? Or things are moving
so quickly at Apple no one has time to think.

(19:10):
It's just innovate and move on.

Speaker 2 (19:12):
So yeah, what's worth understanding is that the years two
thousand and three to twenty twelve are really like a
decade of China being a multinational playground where you could
do whatever you wanted. And the leader at the time,
Huge Intoo, was called his critics the women with bound feet,
someone that was unable to make any decisions and not
really enforced laws, and Apple's able to take advantage of
it to such a degree that by the end of

(19:33):
that period that premiership, they are the world leader in
operations in China in terms of how much they're building
and the sophistication of which that they are building. I mean,
it's the iPhone at this point is five years old,
and they are the world's biggest retail seller in China.
And the retail part of the story is actually my
favorite part of the story because I say it goes

(19:54):
absolutely wild. I mean, without going into the story, it
involves you know, organized crime networks in China realizing we've
got a real opportunity here because Apple has four stores
and yet one point four billion people want this iPhone,
and so we're going to amass as many as we
can and go to all these second and third tier
series with his no iPhone and be the monopolist distributor.
So it's a wild story. So Xi Jinping comes in

(20:17):
in twenty thirteen, and you know, I'm sure your listeners
all know him. I mean, now he's in an unprecedented
third term. I mean he's a dictator for life. You
could think of him as like China's Putin, and Apple
is arguably the first real entity to get a taste
of what it's going to mean for Xijianping to become
the leader, because he becomes leader on March fourteenth, twenty thirteen,

(20:37):
and March fifteenth, twenty thirteen is when the state sponsored
broadcaster CCTV attacks Apple, alleging that Chinese consumers are being
treated poorly by the tech giant. In a way that
other countries are not. And I don't put this in
the book, but I mean CCTV had secret footage in France,
in America and in China showing customers going up to

(20:57):
the Apple employees at the Apple store with similar problems
and the Chinese being treated in this inferior way. And
so there's like this hint of truth behind the allegation.
But it's actually all about these organized crime networks and
this multi billion dollar scam that was being perpetuated against Apple,
and that gets left out of the narrative.

Speaker 1 (21:16):
Let's talk a little bit about that, because that was
brand new, and that's really gets into the guts of
how things can go sideways in China.

Speaker 2 (21:23):
So yes, that's really the value of the chapter. It
tells you all the stuff about Chinese politics and culture
in the most fascinating interesting way.

Speaker 1 (21:29):
Apple only had two stores it should have had two
hundred stores. And then this third party organization think of
it as a Chinese mafia, starts to manipulate things such
that they can want to control distribution.

Speaker 2 (21:43):
Yeah, so without going into the whole story, I mean
they are backed by triads, which you can think of
as the Asian mafia, and they begin finding ways to
make more money per iPhone than Apple. Right, try to
get your head around that and realize that these are
the years that Apple became the world's most valuable company
for the first time eleven. So basically what happens is illegally,

(22:03):
they start buying phones in the US and smuggling them
into China because there's no value out of tax. Well
that's not good enough. That works for a while. Then
they start going to places like Verizon and T Mobile
where they buy a new iPhone using fake IDs, getting
them on a twenty four month contract, but of course
only paying for the first month. So they're buying a
phone for one hundred dollars, and then they're smuggling them

(22:24):
into China, and then not only are they able to
sell that phone for eight or nine hundred dollars, but
they are actually sorry, I'm conflating things. They then take
it back to the Apple store after having zapped the processor,
so they render the phone inoperable. But at the same
time they're rendering it render they're making it so that
the factory the genius bar I'm sorry, cannot see that

(22:45):
this is a phone from Portland, right place that has
no sales tax, and so the genius bar is all
flummixed and they're like, I can confirm that this phone
is new, but I don't. I don't know why the
processor is apped to you. This doesn't make sense. It
must be a supply chain issue like our bad. Essentially,
here's a brand new phone. And I described someone telling
me this, saying this was like cocaine to the yellow Cows.

(23:05):
I don't think i've introduced their name. The yellow Cows
are the name of these scalpers. Oh you know the term.
That's amazing. So anyway, without going into the whole narrative,
I mean, this is the prologue in addition to three
or four chapters in the book. You know, one of
them called yellow Cows in the Gray Market. But it's
just this wild narrative, and what it leads to is
is Apple taking a bunch of actions to protect it's

(23:26):
business against these scalpers, and that results in a different
warranty policy, and that results in the yellow Cows complaining
up to the highest echelons of CCTV and the communist system,
and so they get attacked. But nobody at Apple really
knows what's going on, and so they're totally flummixed. I mean,
you've got PR people sort of in a hotel room
while watching the secret footage and being like, you know,
they're not briefed on this, they don't know what the

(23:48):
hell's going on. And it actually takes Apple more than
eight years, from twenty ten to twenty eighteen to solve
this problem. And so if any of your users have
wondered why every part in the iPhone today is serialized
to the motherboard, it's because the yellow cows were hollowing
out the components like the memory, selling them off to
markets in Senjen and then replacing them with such good

(24:08):
lookalike parts that the genius bar eventually, and this took years,
needed atomic level X ray style machines to be able
to detect which phones have been tampered with and which
hadn't been. Anyway, the key thing, without going to the details,
is that Apples wakes up like, we don't know what
the hell is going on in China. We're in way
over our heads. We have nobody senior in the country,

(24:28):
we don't really have a sufficient government relations team. We
need to take control of this issue. And so part
five of the book, which follows. This is called political awakening,
and it's really when Apple sort of takes over from
Fox Con not in terms of the assembly, but in
terms of the politicking. They're going to sort of build
a lobbying effort and figure out what China is and
what our value to China is, because if we don't

(24:50):
start explaining that we're going to get blacklisted in the country.

Speaker 1 (24:52):
You describe a scene where Tim Cook is inside jong
Nan High right, and there to meet with the highest
levels of leadership in China to make a proposal for
the future.

Speaker 2 (25:02):
Yes, so in May twenty sixteen. Essentially what's happened is
as Apple worries about being blacklisted. Not an idle threat,
I mean Google, Facebook, these companies are blacklists. Yes, they
realize that China wants us to do joint ventures. You know,
China wants us to have these factories where the other
half is owned by Chinese entity, and we're going to
have to teach them all this technology transfer. And so

(25:25):
Apple hires or names this group of people that call
themselves the Gang of Eight. So there's eight people that
the first senior people overseeing every aspect of China's business,
in Apple's business in China. They totally flip this narrative
on its head and they say, it might be true
that Samsung has you know, three dozen joint ventures in
the country, but we're working intimately with hundreds of factories,

(25:46):
and in order for us to build the quality and
the scale that we that we that we do that
we build up, we are training the hell out of
these teams. And our investments into these people has reached
fifty five billion dollars a year, and we are willing
to make that investment over the next five years. So
here's a memorandum of understanding signed by US that says

(26:07):
Apple will invest two hundred and seventy five billion dollars
over the next five years. That is such a large
figure that I could not find any corporate equivalent, and
so I eventually, just as a thought experiment, I wanted
to compare it to the Marshall Plans. Like, take the
Marshall Plan spending, you know, America saving sixteen countries in
Europe after World War Two. You convert it to twenty
fifteen dollars and you realize the Marshall Plan is half

(26:27):
on an annual basis, what Apple that app.

Speaker 1 (26:29):
Will put into China in terms of training and investment.

Speaker 2 (26:33):
Yeah, and you know it's a wild thing because it's
sixteen countries instead of one. But also, I mean I
had to read a whole bunch about the Marshall Plan
since Marshall Plan, mean, the first year of Marshall Plan,
spanning half of it, is just food aid. I mean,
this is how dire the situation was in Europe. And
you know, they're building railroads, are building highways. It's really diversified.
How much spending there is. Apple spending is not diversified.
It is solely on the high end electronics sector. And

(26:56):
it's obviously it's Apple. It's not a bunch of government bureaucrats.
It's ruthlessly efficient. So like the ROI on this stuff
would be insane. And so you know, I've really had
no pushback on this comparison because I think the more
thought you give it, even if an initial initially sounds unhinged,
the more you understand that Apple had this enormous influence
on China, and the Chinese are the ones who agree.

(27:16):
I mean, they agree with this deal. They signed the
deal and sort of were off to the races. And
Apple hasn't really had any major problems in terms of
obstacles to building stuff in China. Since then, one caveat,
they have had obstacles in terms of all the software
and services, so they have banned WhatsApp, the New York Times, VPNs,
et cetera. You know, so they're still working within an
authoritarian regime where they have to play ball. But there

(27:37):
are no more obstacles to China that China is putting
up roadblocks for Apple's production, because Apple's basically said, you're
teaching all of your suppliers, and what do the suppliers
do with the skills. They supply the same skills to Huawei, Apo, Vivo,
et cetera. And those Chinese companies have fifty five percent
market share globally for smartphones. So I really think Apple
built that in a certain sense.

Speaker 1 (27:57):
I'm curious. Earlier in our conversation you said you mentioned
the fact that you know it's unlikely that Apple will
be able to pivot to other countries at least in
the short term, India, Vietnam and elsewhere. What's the number
one limit or why why can't Apple make that move? Oh?

Speaker 2 (28:12):
In a sense, the problem is that there's not one, right,
there's twenty reasons. So we're you know, I get the
sort of sense of the question because like, well, that's
what's the one thing we need to fix, But unfortunately
there's twenty things that we need to fix. I mean,
there's the obvious ones. The wages are much higher in
the United States, and we don't have the same density
of population. The more interesting answer is that China has
this dual class citizenship structure. So if you are born

(28:34):
in a rural area, your household registration, your houko does
not allow you to permanently live in Shenzen. You can
go work in a factory there, but you don't get
any welfare benefits and your kids can't go to school,
so you're not going to stay there. That population is
between three hundred and five hundred million people. So this
season is mind growing in the United States.

Speaker 1 (28:53):
It's yeah, it's the entire United States, Canada, Mexico and
then so.

Speaker 2 (28:58):
Yes, and these are people that basically do ten jobs
in factories just around all all sorts of different industries.
And you know, because what's significant about Apple is and
they're able to take advantage of what you would call
manufacturing as a service better than anybody else because you know,
I've got these internal documents that Apple's quote unquote labor
demand in China falls to around nine hundred thousand in March,

(29:20):
but it ramps up to one point eight million just
for a couple of months during the new iPhone launch.
And so we're just never going to compete with that.
There's this former manufacturing design engineer who's been in the media,
and I love this line. He says, you know, it
would be like the city of Boston, half a million
people gave up all their jobs just to work on
Apple products, right, Like everybody in the city is just working.

(29:41):
That's the density that we're talking about in a place
like Jung Joe, which is known as iPhone city. But
and I've mentioned this to him, it's more than that,
because it's like the five hundred thousand people of Boston
then moved to Milwaukee for a few months, and then
you know, half of them go to New York and
the other half go to Los Angeles or whatever.

Speaker 1 (29:55):
I mean.

Speaker 2 (29:56):
That is what the floating population of dispatch labor that's
what it's called in China is performing. So we're just
never going to compete with that. And those are three reasons.
There's at least fifteen more.

Speaker 1 (30:05):
Now, Apple's done this enormous amount of training, as you
described in the book so so well, and poured so
much money in their fifty billion dollars a year for
ment over a decade. What are the long term implications
for Apple, both inside China and globally? Are we are
they creating a monster of monsters of competition that are
eventually going to overwhelm Apple itself. What's your view?

Speaker 2 (30:28):
Yeah, well, to some extent, this is already happening in
that I think the sexiest phone you can buy right now,
right which is the main XT from Huawei, because it
unfolds twice, so in Apple terms, it is both an
iPhone and an iPad in one, and it costs twenty
six hundred dollars. And some critics say, like, wow, that's
the downfall right there. It's twenty six hundred dollars, But
you're missing the significance that it was only in twenty

(30:49):
fourteen that all the Chinese did was just sort of
poor imitation of the iPhone, and then by twenty eighteen,
twenty nineteen, And this is one of my favorite chapters
because it's all based on internal documents able to discover,
you know, emails from Tim Cook to the board and
a whole host of other things. Is when they really
matched Apple. Apple had come out with the Infinity Pool
like design of the iPhone for the tenth anniversary, and

(31:11):
the Chinese match it within months, and they're stunned, And
I've got the internal emails.

Speaker 1 (31:15):
Talking about that.

Speaker 2 (31:16):
Today, they're selling, you know, in card terms, the Porsche
of phones rather than just matching Apple. So I think
we're already seeing that. And unfortunately for Apple, the AI
story makes this all the more complicated because you know,
Siri is not keeping up. I mean, Siri is ten
years behind. I mean, it's just an awful product at
this stage. And yet in America that doesn't necessarily matter

(31:37):
so much because I don't use Siri. I have the
Action button and I just cap up Chat GPT whenever
I feel like it. The problem is if we're in China,
Chatgypt is illegal, so Apple has to work with Baidoo
or Ali Baba. I mean, they're negotiating for months and
we still don't have anything. So the more that they're
working with these AI companies in China, the more they're
actually going to be replicating the model that I've talked
about for the last twenty five years, Apple's been training

(31:58):
all these hardware engineers and now going to be at
a point where the latest grads at a Caltech and
MIT and Stanford joining Apple are going to fly over
to China and help buy Do build up their AI systems.
That strikes me as a terrible idea, And yet that's
a really likely outcome, and Washington's already concerned about that, right,
great story in New York Times by tripnical about this.
I foresee AI being the defining feature of what phone

(32:18):
you purchase, if not this year, than the next year.
And in China the iPhone is just way behind. So
it's either the scenario in which I just laid out
that Apple's having to train work hand in hand with
by Do or Alibaba that's not great, or that they're
really not doing that, you know, relying on Siri, in
which case you'd much rather have a Shaomi phone. And
so my prediction is that you know, Apple market share

(32:41):
will probably fall to single digits by twenty thirty, and
probably being generous by saying two thousand and thirty is
more likely to be in two or three years.

Speaker 1 (32:48):
That's talking global is that inside China?

Speaker 2 (32:49):
No, just in China.

Speaker 1 (32:50):
Just in China.

Speaker 2 (32:51):
Yeah. What's making things complicated is you can't go buy
a Shaomi phone in America. You can't go buy a
Huawei phone in America. And the reasons are are complex.
Whileways on the entd list, for instance, So it's easier
to predict what's going to happen in China, it's harder
to know what's going to happen in America. I mean,
we're all really locked in on our iPhones here right.
The penetration is about fifty percents, and like it would
take a really high bar for me to leave my

(33:12):
iPhone behind because I've got, you know, fifteen years worth
of photos and text messages and stuff like that on
the phone. You're sort of attached. You've sort of locked
in a certain sense. In addition to just it being
a great product. I mean, I'm not an Apple bear.
I think Apple is a phenomenal company. Hm, but they
have this one massive achilles heel.

Speaker 1 (33:27):
Tim Cook's been in charge for a long time now,
and as you described in the book, you have on
the one hand, Steve Jobs genius in particular marketing really
pushed people what they thought they were capable of doing
Tim Cook much more regimented, strict, smart, phenomenal recall, photo,
photographic memory, tough. But you get the sense that that

(33:49):
that element of innovation or creativity may not be there.
Why has no one else risen within Apple to sort
of be the next successor to Tim Cook? That's been
how many years now that Tim Cook's been in charge?

Speaker 2 (34:02):
So he's been at the company since nineteen ninety eight,
so twenty seven years. But he's been CEO since August
twenty eleven, so about fourteen years.

Speaker 1 (34:09):
Fourteen years. That's a long time to be in the
boss of Yeah, he's.

Speaker 2 (34:14):
The Yeah, no, I mean it's a fifty year old company, right,
so you know you're approaching something like a third of
the company has been under Tim Cook's tenure.

Speaker 1 (34:20):
Or can I put the question maybe more directly, is
is Tim Cook the guy who comes along and makes
the company super efficient? But is the beginning of the
end for the company?

Speaker 2 (34:30):
Yeah? And I do worry about that. I mean, again,
the iPhone I think is here to stay. I mean
I know that Johnny Ivan Sam Altman just signed a
deal to do this like hardware within the company, And
maybe I'm just totally out to lunch, and it's two
thousand and six and I'm banking on the Blackberrier, the Nokia,
unaware that the next revolutionary device is literally months away.
I'm totally open to that possibility. But we're staring at

(34:50):
these glowing rectangles in our pocket four to five hours
a day. It's a really high bar to take that on. True.
You know, you're wearing these glasses, and it might be
possible that in a year or two of those glasses
have great compute power within them. But they're going to
augment your phone, and the same that my Apple Watch
augments my phone. I don't know that we're getting rid
of it anytime soon, Okay, okay, right, So I'm sort

(35:12):
of bullish on the long term prospects of that. So
in other words, even if the iPhone is just getting
a little bit better battery life and the cameras improved,
Y're in, you're out, That quite frankly, might be enough
that the business is basically fine. I mean, the MacBook
is still the best laptop. I think dollar for dollar,
money can buy MacBook Air and a host of other products,
and they are doing stuff with Vision Pro. I mean,
I think the Vision pro is a disaster of a
purchase I returned by and after excitedly paying thirty five

(35:34):
hundred dollars for it, because it basically has no content,
So there's nothing you can do with the damn thing.
But in terms of its actual technology, it is an
absolute marvel, and so I wouldn't discount the possibility that
they're able to put that into a better form factor
in the next few years.

Speaker 1 (35:46):
Okay, but they still got momentum, they're still innovating. Yeah.

Speaker 2 (35:50):
The last thing I would just say about that is
that it's kind of a lazy criticism. It's not inaccurate,
it's accurate, but it's a kind of a lady lazy
criticism to say that Tim Cook's not the product guy
because he was a pointed, you know, unilaterally by Steve Jobs,
the ultimate product guy. Yes, it's not like he was
pretending to be a product Everyone knows he's not a
product guy. My criticism of Tim Cook, I think is

(36:10):
more biting because he's supposed to be the guy that
sets up resilient operations for the company, and yet on
the one hand, yes, he builds the most sophisticated supply
chain the world has ever seen. But he makes the
rookie and calamitous mistake of putting it all in one country.

Speaker 1 (36:23):
Right he Maybe it's timing too. There was a time
when it was just in time was everything, maximum of
efficiency was everything. Now people increasingly talk about supply chains
in terms of just in case, and this is Yeah,
it's a different We're in the midst of this mass.
It seems like a big transition.

Speaker 2 (36:41):
To COVID was a big catalyst for that, wasn't it.

Speaker 1 (36:44):
Tesla. Let's talk about Tesla just for a moment to
compare and contrast, because I know a lot of listeners
would be curious to understand what's similar and what's different
between Tesla and Apple, and with regards to their approach
to China.

Speaker 2 (36:56):
Yeah, so let me give two answers and then and
then go back to the narrative of the book. So
the biggest difference is, of course, they do make their
own products, right, Apple orchestrates everything. Tesla actually has its
own facilities, and Tesla has a trifurcated supply chain. You know,
what do you say when it's three, So they have
a very local supply chain in America. I mean, you're
the car guy, So correct me if you think Tesla's

(37:16):
wrong here. But I think Tesla's accurate when they say,
you know, the Model three, the Model Y are the
most American made cars.

Speaker 1 (37:21):
Absolute.

Speaker 2 (37:23):
Yeah. The trouble is that's not the case like in Germany.
It's not like it's an American made car that's then
done in Germany. It's a very German car in Germany. Right,
they localize the supply chain, and they do the same
in Shanghai. So they localize the supply chain. Well, the
thing that people don't seem to know is how do
they localize the supply chain? They adopt the Apple model.
So this goes back to my narrative where after Tim
Cook basically convinces Chinese officials of the superiority of the

(37:46):
Cook plan, right, the Chinese officials basically recognize that what
Apple is doing and what they're offering is superior to
the joint ventures model that they've been pushing on people
for four decades. So it's only what two years later
that Elon Musk comes calling saying, I'd like to build
a factory in Shanghai.

Speaker 1 (38:03):
Let's suit.

Speaker 2 (38:03):
In twenty four months, the mayor of hat Shanghai says,
let's make it twelve, and they sign this deal where
they're getting a bunch of land in machinery and migrant
labor whatever they need. And the quid pro quo here
is is that Tesla hires a bunch of Apple people
to set into motion a plan to take their takes
the cook plant, takes the Apple model and teach the
supply chain, localize the supply chain to get to Tesla

(38:24):
levels of quality. So the thing the automotive world doesn't
get is should I kind of talk about the catfish effects?

Speaker 1 (38:30):
This must be known. Yeah. One.

Speaker 2 (38:33):
So the catfish effect is a phrase that's that's used
in China, and it's used to describe Tesla. So the
myth goes that, you know, it's it's if you can
get sardines way out at sea, if you're a Norwegian fisherman.
The problem is, by the time you get back, they're
not worth very much because dead sardines don't don't fetch
a high value. If you can keep them alive, somehow,
the texture of the flavor is somehow better. So the

(38:53):
myth is that this Norwegian fisherman realizes that if he
puts a catfish in the tank, of sardines. The sardines,
instead of growing sedentary and buying, they will fight for
their survival so they stay alive. I'm sure some get eaten.
I don't know what the ratio is from catfish to sardines,
but it works out for this person economically. So the
idea is, let's put Tesla into Shanghai and it's going
to inspire everybody else. You put it Tesla as predator

(39:15):
creates this you know, better supply chain, better EV market
for all of China. Problem. I love that analogy, but
I think is wrong. The problem with it is it
implies that it's like Tesla's marketing prowess, right, or that
people are inspired by it, But actually it's it's the
Apple model.

Speaker 1 (39:31):
Right.

Speaker 2 (39:32):
Tesla is asked do for the EV sector what Apple
has done for the smartphone sector. And so it's Tesla
engineers that are working hand in gloves in these factories
like c at L to help them with their batteries,
to introduce what steam jobs used to call it giving
a shit, and within you know what, twenty four months
of the Model three going on sale in twenty nineteen,
Chinese evs are suddenly spectacularly good and that even before

(39:54):
Donald Trump two point zero comes on, Don Joe Biden
is putting one hundred percent tariffs on Chinese made evs.
So the last thing I would say is that when
I was the German automotive correspondent from twenty sixteen to
twenty nineteen for the for the Frankfurt Sorry for the
Financial Times in Frankfurt, I mean the story of Chinese
EV's was not a story. Nobody was writing about that.
Once the gigafactory in Shanghai opens, it becomes like the

(40:16):
story in autos. Someone to write a book about that.

Speaker 1 (40:19):
So I should write a book now. Absolutely. You know
that as we look back at Made in China twenty
twenty five, people go, oh yeah, China had a master
plan for electric vehicles batteries. For much of the twenty tens,
China really struggled until just as you say, Tesla entered,
started manufacturing, built up the supply chains, and then you
had this pivot. This this transformational moment where EV's went

(40:41):
from for Chinese consumers, evs went to not really desirable,
low range suspect quality, don't know, to.

Speaker 2 (40:49):
God, we got to have one. Yeah, and the proof
of whatever is in the market share. I think in
twenty nineteen it's four point eight percent of all cars
or EV's, which is stunningly low if you realize that
EV's have two decade history at that point in China,
and that places like shen Jen have more electric buses
than the rest of the world combined.

Speaker 1 (41:06):
Comebine, it's like seventeen.

Speaker 2 (41:07):
Or thirty thousand or something, And there's all sorts of subsidies,
Like it's difficult to get a car license plate in China,
Like it's literally held at auction and you might have
to pay the equivalent of ten thousand dollars if you
have an EV it's free. They're like, please buy an
EV and nobody is until Tesla trains the supply chain.
It's absolutely dramatic.

Speaker 1 (41:23):
So what can the West catch up or match China
when it comes to industrial might scale cost effectiveness? Is
it even possible?

Speaker 2 (41:34):
Yeah, I entered this conversation as a total pessimist, which
is very contrary to my nature. I'm like a joke
that I'm this happy, go lucky Canadian golden retriever. I mean,
I wake up sunnyside every day or whatever. China's world
class manufacturing is on such a scale and so superior
to the rest of the world that experts struggle to
even understand just how damn good they are at this.

(41:56):
And when Beijing sets a strategic goal to dominate any
particular industry, its impact is so large that the effect
is to de industrialize rival nations in that industry. So
it doesn't you don't have to be all anti China,
you don't have to fear the Communist Party or anything. Yeah,
just to recognize the size this like sorry, the scale,
the quality, and the determined determination of the Chinese state.

Speaker 1 (42:19):
So it's almost like, may not be perfect. What comes
to mind is people will ask, well, isn't a little
bit like the Japanese and Koreans before them, and then
we work that out. But no, this is like twenty
five Japans at the same time.

Speaker 2 (42:33):
I mean, yeah, yeah, basically that's a great analogy. I mean,
other nations were okay being part of what you would
call Pax Americana. China for a reason, you know, host
of reasons. One is that they've got this five thousand
year civilization. One is that they have this you know,
proud sense that they're the Middle Kingdom. And the other
just being that they're such a large country. Why would
they be sort of taking marching orders from a country

(42:54):
whose population is one quarter the size.

Speaker 1 (42:56):
I mean, they he's only been around for one tenth
of the time.

Speaker 2 (43:00):
If they view American dominance as an aberration history, right,
the previous eighteenth centuries from like what the first to
this the eighteenth are really like China's the largest economy,
and that's the way it's going to be in the future,
you know. And again you don't have to begrudge them
for this. I mean, in the same way that New
Yorkers think they're at the center of the world. That's
how people in Beijing think. They've got good arguments on
their side. But it's scary to think of just how

(43:20):
dominant China is and this kind of stuff, and that,
you know. My argument is that Apple played the role
of Prometheus gifting the Chinese, handing the Chinese the gift
of fire.

Speaker 1 (43:28):
What do you think China's ambition is? When will China
be satisfied?

Speaker 2 (43:32):
That's a great question that might be above my pay grade,
but I mean just total dominance of certain sectors and
unfortunately an exing Taiwan, you know, getting to a place
where no one's going to put up the fight for
multiple reasons. One would be convincing the Taiwanese population that
this is how things are going to go, So it's
no point to put up a fight. And you know,

(43:53):
I basically witnessed this in Hong Kong. I mean, there
was no military battle over Hong Kong. They just absorbed it.
I think that's the goal for Taiwan. But that's scary
for us because if the fabs from TSMC and other
companies fall into the hands of the Chinese, I mean,
are dependence on China for anything would be absolutely dramatic.
I mean, anything electronic that you can see in my
house has chips inside, and TSMC's dominance in that sector

(44:16):
is absolutely unparalleled. You know, I forget I think of
taking this from semi Analysis, you know, a tech analytic
firm that does chips, and they talk about how, you know,
everyone knows Moore's law, which is that every eighteen months
or every two years, you know, the speed of chips double,
but there's a there's a sort of counterpart to Morris law,
which is that the expense of building the fabs for

(44:37):
the next generation chips also doubles. Right, So it is
not at all easy to I've never heard of.

Speaker 1 (44:42):
That size or value of them. Yeah, sorry to interrupt,
but that's huge, the expense of building the fat because
these things are so sophisticated. Doubles too.

Speaker 2 (44:51):
Yeah, so the I mean, TSMC's investment into Arizona is
sixty five billion dollars. It is the largest green field
site ever in America, and yet it's small relative to
what TSMC is capable of in Taiwan. So yeah, this
is where stuff gets really scary, because you know, I
point out that Warren Buffett divested his entire five billion
dollar investment in TSMC. I forget this might have been

(45:14):
three years ago. He basically said, I love the company,
don't like the location. Well, he is also the single
largest investor of Apple, and basically during the writing of
my book, he divested two thirds of his stake in Apple,
and he hasn't really explained why. But I think the
logic is the exact same. I mean, it fits right.
Apple is TSMC's largest client, it has been for more

(45:35):
than a decade. And if TSMC has a risk because
of its location, then so does Apple.

Speaker 1 (45:40):
Let's come back to your book. Highly recommend Apple in China,
the capture of the World's Greatest company. Two final questions
for you, Patrick, One, what's the single what was the
single hardest thing about writing this book?

Speaker 2 (45:53):
Sourcing? I mean, without question, you know I don't need
to think about that at all. I would say the
biggest fear was that just nobody would talk to me,
and that you know, if nobody talks to you, you
still have a book deal. So at that point, what
do you do? You just sort of tell the story
that's already been told through newspapers or whatever, and that
would have been an absolute disaster. Instead. If there's one
thing I really knocked it out of the park on,
it was getting more than two hundred people to speak

(46:15):
with me. And if two hundred doesn't sound like a lot,
I mean for starters it is. But also it's the
caliber of the person. It's the role that they had,
how essential they were in terms of being in China,
on the ground, in the weeds for the last thirty years.
I mean, the book really is a thirty year history
and it's not some diet tribe or anything. It's like
how it happened, narrative of how you take the DNA

(46:36):
of Apple force them into a position where they have
to outsource, and yet they're only going to outsource that
they have the control as if they own the manufacturing facilities.
And so they come up with basically a new model,
and in doing so they sort of propose and marry China.
Proposed to and marry China. And it's this like perfect
combination of skill and scale, and tell Hijinping sort of
flips the script on them, and then they have to

(46:57):
live with that and begin to figure out how to
play Kate local officials, how do we play Kate federal officials?
And so it ends up being damning in a way,
but it's damning. It's especially damning in the sense because
the book is so it doesn't really take pot shots
or cheap shots here there, everywhere. I couldn't resist. I
think there's two, but generally speaking they're not there.

Speaker 1 (47:19):
I don't remember them. Let me think there was when
the guy from Beijing was doing the retail. Was he
eventually left the company or he came under enormous like
Steve Jobs said fire them something like that.

Speaker 2 (47:32):
That's a great narrative. Yeah, No, I'm thinking more like
Bill Clinton had famously said good luck to the Chinese
because they were going to introduce the Internet and they
still wanted to have an authoritarian government, and he said
that would be like nailing jello to the wall. And
in the narrative, I say fifteen years later, seventeen years later,
Beijing realized they didn't need to nail anything to the wall.
The world's largest company was happy to just hold it

(47:53):
there for them. That's a biting line. There's a few
of those, wasn't she said, get rid of those, but
I had to have a few. But on the whole,
I think it's quite a fair narrative and frankly best reaction.
But I had great reviews in places like The New
York Times and Foreign Policy, and that's been, you know,
really heart wrenching me that the New York Times review had me,
you know, crying in the streets of Manhattan, cooking up essentially.

(48:14):
But the best stuff has been from Apple people that
I do not know that we're not part of the book,
reaching out and saying this is like a guidebook to
the company I work for.

Speaker 1 (48:22):
This is an incredible narrative, like we got this right.
Probably you revealed many things that they themselves were not aware.

Speaker 2 (48:29):
Of, absolutely and of course that can sound so arrogant,
but just just just just just suspend that for a second.
Just realize how siloed the organization is. If you are
working in retail in China, you do not know the
operations narrative. If you're in operations, you do not know procurement.
If you're in procurement, you do not know logistics, et cetera.
And so to sort of be a journalist to talk
to everybody and then put that all together, it's absolutely

(48:51):
a novel narrative that the most senior people at Apple
would have some inkling of, and most people at Apple
would have no inkling of. And it's not an anty
Apple book. I mean again, or is it an anti
China book? I mean, the scarier you think China is,
the more scary book is. But I don't try to
convince you that it's it's altalitarian regime or anything.

Speaker 1 (49:08):
The final question for you this good. We could go
on for another hour. Love the vogue. Oh yeah, you
did a great job of bringing us into the scene
by talking to people who are on the front lines
and capturing a lot of their direct quotes, which makes
the story delicious. This is what people said at that
moment in those situations. So really well done. Back to
your thing about sourcing. What was your secret superpower of

(49:31):
getting to get people to talk to you, because Apple's
notorious for being so tight lipped and having NDAs that
go on forever.

Speaker 2 (49:37):
Yeah, so I reached out to thousands of people mm
hmm and only spoke to two hundred. So two hundreds
is of a lot in absolute terms in terms of
my hit rate, if you will, disaster, right, So you
just had to read there's this old school reporting. You
just had to reach out to so many people that
as long as you've sort of had a success rate
that one percent or whatever, we're responding. You know, I
would send one hundred messages on a Thursday night, and

(49:58):
if I woke up to three or four the next morning,
total success, right, even though the hit rate was four percent. Okay,
So there's that. And then once you make contact with somebody,
I could convince someone or they would get the sense
within two three minutes that I was trying to take
this topic very seriously. I was really interested in manufacturing
the nitty gritty. I wanted to know about the engineering breakthroughs.
I wanted to tell supply chain story. I wasn't taking

(50:19):
some anti Apple stands that I really wanted to know stuff.
And so after two hours of a conversation with someone,
I would say, who are five colleagues that you used
to work with or currently work with that you think
could also talk. Very often the person would not want
me to use their name, but they would say, here
are the email addresses, here are the phone numbers. Just
say a colleagues that you should be in touch. Okay,
So that's how I got such good sourcing. All right,

(50:41):
I keep saying, last question I'm going to have this time.
I mean, okay real as a writer, as a researcher,
as talking to people on the front, what was the
single biggest surprise for you when you wrote this book? Well,
I could tell you that when I wrote a seventy
page book pitch, one thing that I was a little
embarrassed about is I had nothing interesting to say about

(51:03):
the years two thousand and seven, the birth of the
iPhone to twenty thirteen Apple's political awakening. I didn't know
how I was going to fill that part of the book, right.
So I had the contours of the story that was
going to be part four. But what was I going
to do just give some nitty gritty engineering details about
how an iPhone has made and why it was different
from Nokia. I mean, I really worried that the most
exciting years of iPhone growth were actually just gonna be

(51:25):
these boring chapters because I had nothing to say. And
then I discovered the whole narrative with the organized gangsters
and the yellow cows, the birth of the iPhone in China,
and it ends up being this totally instrumental, favorite part
of the narrative. But unexpectedly it also ties a ribbon
on the opening prologue because I basically feel like I

(51:45):
solved the riddle of why CCTV attacked Apple in twenty thirteen.
This was covered by everybody, you know, the Wires, the
New York Times, the Atlantic, et cetera. But we've never
understood what warranty difference is. Why did CCTV attack Apple?
It all had to do with these these gangsters and
all these fake stores and stuff, and so this is like,
this is just how I would aspire to to think

(52:07):
of it, as probably overstating it a little bit. One
of my favorite books is called Say Nothing About the
Troubles in Northern Ireland by Patrick Bratt and Keith You
have it, amazing it. Yes, I see this isn't video,
but Michael's looking around his room. It's close by. Amazing
book And so sorry, have you read because I'm about
to give away something.

Speaker 1 (52:22):
I've only read the first few pages. I'm about too well, I.

Speaker 2 (52:26):
Know, I mean, I don't think I'm actually giving away something.
So you know, I'll say to your audience while you,
you know, put your headphones on it and sing to
yourself for a second. But the book begins famously with
the disappearance, i e. The murder of this woman who's
got young children, yes, mother of twelve or something. It's
a terrible scene. By the end of the book, almost
by accident, the author solves the question of who murdered her.

(52:48):
That book's amazing and I feel like I did the
closest thing possible for my narrative, which is that I
had started the prologue with the CCTVs attacking Apple, and
after I submitted the manuscript and was working on various things,
I realized that it was the complaints of the yellow
cows that caused to where did this come from? Ah,
this new sourcing. I just was able to speak to

(53:09):
certain people. I basically ambushed someone that was very senior
at Apple. I found this person at a party, knowing
that they would be there and then and and you know,
it's an off for record party, and I was just
able to ask all these questions and yeah, basically solved it.
So thrilled about that.

Speaker 1 (53:25):
Fantastic Patrick McGee, author, Apple and China, the Capture of
the World's greatest company. Thank you so much for joining
us today. I feel like we must absolutely do a
part two because whole scene, the whole situation is evolving fast. America, China, Apple, Tesla.
Where to from here?

Speaker 2 (53:44):
Yeah, I need to figure out what I'm going to
do when I grow up, So I don't know what
my next job is and whether I'm giving up the
Apple beat or or you know, focusing more on industrial
state craft. We'll see, but I look forward.

Speaker 1 (53:54):
To your book and maybe we'll continue the conversation. Then. Fantastic,
Thank you again. Here's Michael awesome. McGhee is such a
great author and a tremendous guest on the podcast for
two reasons. One, he imparts so much fresh knowledge about China,

(54:17):
about Apple, and how the two have come to become inseparable.
But the second reason I like this conversation is because
McGhee prompts new questions. Particular two come to mind. One,
is it possible for any other country to match China
when it comes to manufacturing scale, speed, cost, supply chains

(54:38):
and quality. For McGee, well, he wonders about that, and
he has good reason to do so, As my good
friend Mark McCarty recently said, China's scale is to America
today what America must have been to the Europeans one
hundred years ago, simply incomparable. Think about that. Second, will

(54:58):
Apple eventually gets squeezed from the China market? What about Tesla?
Huawei and Shaomi are now fierce competitors in China, and
Apple will have a hard time. Tesla stands a better
chance because of its zealous culture of innovation and its
big bet on autonomy. But if Tesla succeeds in China,
it would be the exception to the China Arc rule.

(55:22):
Sooner or later, the Chinese tend to triumph in their
own backyard. And now for our word of the week.
Huang yo Yes, Huang means yellow, nio means cow. Taken
together they mean yellow cow or ox button streets flang
the one that McGee used in our conversation. Huang Yo

(55:42):
means a scalper. For years, Chinese mafia groups were basically
scalping iPhones for oceans of profits. So how do we
use this word? Next time someone tries to negotiate hard
with you, ask him if he or she is huangyo.
That will stop them in their tracks. Hey, did you

(56:03):
enjoy this episode? Send me a DM with your impressions,
Share it with a friend. Thank you for joining. I
am Michael Dunn and this is the Driving with Done
podcast where you meet the experts creating the technologies that
will power tomorrow's cars electric autonomous software. To find this

(56:24):
is a Driving with Done podcast. Thank you for joining
this episode of the Driving with Done podcast. To connect
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podcast