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| Apple Raises Bet on China as It Faces Scrutiny From Beijing | Apple Raises Bet on China as It Faces Scrutiny From Beijing |
| (35 minutes later) | |
| HONG KONG — In April, Apple’s chief executive, Timothy D. Cook, sat down for the first time with the leaders of the Chinese ride-hailing app Didi Chuxing to discuss working together. | HONG KONG — In April, Apple’s chief executive, Timothy D. Cook, sat down for the first time with the leaders of the Chinese ride-hailing app Didi Chuxing to discuss working together. |
| Just three weeks later, Apple was ready to take things to the next level with the announcement on Thursday of a $1 billion bet on Didi, one of its largest-ever investments. | Just three weeks later, Apple was ready to take things to the next level with the announcement on Thursday of a $1 billion bet on Didi, one of its largest-ever investments. |
| Didi is the biggest company of its type in China, and Apple has plenty of good reasons to get onboard. But moving so quickly into a relatively established sector in a difficult market is out of character for Apple, the iPhone maker. The fast turnaround and willingness to publicize the deal hint at a second motivation for the investment: showing the Chinese government it is willing to support local companies. | |
| More so than any other major American technology company, Apple has had huge success in China. In Apple’s last fiscal year, Chinese consumers spent $59 billion on the company’s products, although its first-quarter sales in China fell 11 percent this year compared with the same period in 2015. | |
| With that success has come huge risk. In recent years, Beijing has grown more aggressive in pushing an agenda aimed at growing local tech companies, forcing multinationals to play by its rules if they want access to China’s markets. | With that success has come huge risk. In recent years, Beijing has grown more aggressive in pushing an agenda aimed at growing local tech companies, forcing multinationals to play by its rules if they want access to China’s markets. |
| Apple has faced increased scrutiny in China recently, with regulators shutting its iBooks and iTunes movie stores in the country. Other companies that have hit such roadblocks, like Cisco, Microsoft and Qualcomm, followed by investing in local partnerships and trying to portray themselves not simply as foreign companies, but as stakeholders in China. | Apple has faced increased scrutiny in China recently, with regulators shutting its iBooks and iTunes movie stores in the country. Other companies that have hit such roadblocks, like Cisco, Microsoft and Qualcomm, followed by investing in local partnerships and trying to portray themselves not simply as foreign companies, but as stakeholders in China. |
| “Apple must be increasingly sensitive to the need to improve its government relations and to stake out a more entrenched position in the China market,” said Mark Natkin, managing director of the China technology research firm Marbridge Consulting. “So making a sizable investment in a leading Chinese I.T. company will buy it a lot of good will.” | “Apple must be increasingly sensitive to the need to improve its government relations and to stake out a more entrenched position in the China market,” said Mark Natkin, managing director of the China technology research firm Marbridge Consulting. “So making a sizable investment in a leading Chinese I.T. company will buy it a lot of good will.” |
| He added that Apple would probably have to follow up the investment with other partnerships and spending in China if it wanted to stay in Beijing’s good graces. | He added that Apple would probably have to follow up the investment with other partnerships and spending in China if it wanted to stay in Beijing’s good graces. |
| In Apple’s case, the new investment also helps it show Beijing how its operating system and iPhones are closely linked with the rise of app development within China; Didi’s app, for example, is the most downloaded ride-hailing software in China. And $1 billion would scarcely dent Apple’s nearly $233 billion in cash and marketable securities. | In Apple’s case, the new investment also helps it show Beijing how its operating system and iPhones are closely linked with the rise of app development within China; Didi’s app, for example, is the most downloaded ride-hailing software in China. And $1 billion would scarcely dent Apple’s nearly $233 billion in cash and marketable securities. |
| “Didi exemplifies the innovation taking place in the iOS developer community in China,” Mr. Cook said in a news release. “We are extremely impressed by the business they’ve built and their excellent leadership team, and we look forward to supporting them as they grow.” | “Didi exemplifies the innovation taking place in the iOS developer community in China,” Mr. Cook said in a news release. “We are extremely impressed by the business they’ve built and their excellent leadership team, and we look forward to supporting them as they grow.” |
| For Didi, the deal is a way to beef up its systems. The Chinese company serves close to 300 million users across more than 400 Chinese cities — more users than Uber — but lags technologically, analysts say. | For Didi, the deal is a way to beef up its systems. The Chinese company serves close to 300 million users across more than 400 Chinese cities — more users than Uber — but lags technologically, analysts say. |
| For more than a year, Apple and Didi — which share several partners, including Japan’s SoftBank and Coatue — had been in contact. Apple was one of a handful of technology companies that, over the past year, Didi had talked with to better familiarize itself with the West, according to a person briefed on the deal. | For more than a year, Apple and Didi — which share several partners, including Japan’s SoftBank and Coatue — had been in contact. Apple was one of a handful of technology companies that, over the past year, Didi had talked with to better familiarize itself with the West, according to a person briefed on the deal. |
| In the midst of Didi’s last major round of raising funds, the relationship quickly deepened, the person said. The two companies managed to close the deal with “lightning speed,” Didi’s president, Jean Liu, said in a conference call discussing the deal late Thursday. | In the midst of Didi’s last major round of raising funds, the relationship quickly deepened, the person said. The two companies managed to close the deal with “lightning speed,” Didi’s president, Jean Liu, said in a conference call discussing the deal late Thursday. |
| “The first time we met with Mr. Cook, we shared with him a joke,” Ms. Liu said. “Our company’s legal name is called little orange. We figured a company named after a fruit could always achieve something big.” | “The first time we met with Mr. Cook, we shared with him a joke,” Ms. Liu said. “Our company’s legal name is called little orange. We figured a company named after a fruit could always achieve something big.” |
| The two will work together on technology, marketing and products, Ms. Liu added. | The two will work together on technology, marketing and products, Ms. Liu added. |
| Apple’s move also draws it further into a Chinese market crisscrossed with competitive alliances. With the investment, Apple is now aligned with China’s two largest Internet companies, Tencent and Alibaba, as a major shareholder in Didi. And Didi gained Apple as a big-name ally in its battle with Uber in China; the two ride share companies have spent billions of dollars subsidizing drivers as they tried to carve out market share in China. | |
| Google’s chief legal officer and head of corporate development, David Drummond, is on the board of Uber. And in 2013 Google’s venture capital arm, GV, invested $258 million in Uber. | Google’s chief legal officer and head of corporate development, David Drummond, is on the board of Uber. And in 2013 Google’s venture capital arm, GV, invested $258 million in Uber. |
| But the partnership between Uber and Google has grown more distant over the past few years as both sides have independently pursued self-driving car projects. Uber has also made moves to wean itself from Google’s map technology, including an acquisition of the mapping start-up deCarta. | But the partnership between Uber and Google has grown more distant over the past few years as both sides have independently pursued self-driving car projects. Uber has also made moves to wean itself from Google’s map technology, including an acquisition of the mapping start-up deCarta. |
| Investing in ride-sharing gives Apple a doorway into the world’s largest auto market and smartphone market by cars and phones sold, and an opportunity to better integrate its devices with cars in China. China’s Internet companies are already hard at work developing driverless car technology and entertainment systems for cars, many of which are based on Google’s Android software. | Investing in ride-sharing gives Apple a doorway into the world’s largest auto market and smartphone market by cars and phones sold, and an opportunity to better integrate its devices with cars in China. China’s Internet companies are already hard at work developing driverless car technology and entertainment systems for cars, many of which are based on Google’s Android software. |
| Apple has been working on its own secret car project, which one independent analyst, Neil Cybart, said Wednesday accounted for a huge share of the billions of dollars in research and development spending by the company. | Apple has been working on its own secret car project, which one independent analyst, Neil Cybart, said Wednesday accounted for a huge share of the billions of dollars in research and development spending by the company. |
| The auto market might be one new way that Apple can keep itself relevant to Chinese leaders who often view foreign tech firms in terms of how much utility they have in China as teachers of local companies, Mr. Natkin of Marbridge Consulting said. | The auto market might be one new way that Apple can keep itself relevant to Chinese leaders who often view foreign tech firms in terms of how much utility they have in China as teachers of local companies, Mr. Natkin of Marbridge Consulting said. |
| “As that utility wanes, the room to maneuver dwindles and the welcome mat starts to get drawn under the door,” he said. | “As that utility wanes, the room to maneuver dwindles and the welcome mat starts to get drawn under the door,” he said. |