April 7, 2015 by ...
The last quarter was an epic one for Apple Inc. They recorded the highest profits of any company, ever. This feat was accomplished in no small part, with the help of China. The land of 1.4 billion people became Apple’s largest iPhone market, after all.
This Apple Love is a bone of contention for the Chinese communist party and companies such as Huawei, ZTE and Xiaomi. The first two of these are the darlings of Beijing and forced product of choice for communist officials. For its part, Xiaomi is favored by less educated men who live in smaller cities.
The ‘government darlings’ have raised prices, a thing they can afford to do. As I said, the communist party is paying the salaries of civil servants, so buy Huawei they must.
Xiaomi cannot be so bold, however. As we all know, Xiaomi is the Walmart of tech-always low prices, always. They are positioned as a national fav and do their part in cyber snooping, but are not the weapon of choice for the communist party as of yet. This means that they must muddle through with skimpy profit margins.
Apple’s ‘killer quarter’ goes far in proving how free markets create value. Apple must innovate or die, something that state-backed firms such as Huawei need not fear. Xiaomi benefits from favorable Chinese policies through IP theft and lax enforcement of laws. This enables both firms to stay afloat when the same may not be possible in a free market.
The best proof of this is that the cost of most cell phones includes 30% in license fees. Xiaomi nicks tech and thus gets around paying these. Their ability to gainfully compete on a level playing field is anybody’s guess. If they could do so they would, right?
The conclusion is that protectionist measures ensure that subpar goods and ‘Apple mimes’ make it to market when possibly they should not. The communist party has 80 billion members and mandating that civil servants carry Huawei surely buoyed that firm. Xiaomi benefits from cash subsidies vis-a-vis IP theft. Could either firm succeed in a competitive market?
To be honest, we will probably never know. Absent regime change, the Chinese market will never be fully functional.