Apple’s future success with the iPhone is believed to depend on the availability of new artificial intelligence features. However, tensions between Washington and Beijing may hinder the tech giant’s plans to deliver AI in China, its second-most-important market.
In recent months, White House and congressional officials have been scrutinizing Apple’s plan to partner with Alibaba to make the Chinese company’s AI available on iPhones in China, according to three people familiar with the deliberations. The concern is that the deal would enhance a Chinese company’s AI capabilities, expand the reach of Chinese chatbots with censorship limits, and increase Apple’s exposure to Beijing’s laws regarding censorship and data sharing.
The Challenge for Apple
This scrutiny is the latest example of the challenges Apple faces as it tries to maintain its businesses in both the United States and China amid rising geopolitical tensions. Three years ago, the US government successfully pressured Apple to abandon a deal to buy memory chips from the Chinese supplier Yangtze Memory Technologies Corporation (YMTC). More recently, the company has been affected by US tariffs on Chinese-made products like the iPhone, potentially cutting into its profits.
Impact of Walking Away from the Alibaba Deal
Walking away from the Alibaba partnership would have significant consequences for Apple’s business in China, which accounts for nearly a fifth of the company’s sales. The partnership is crucial for bringing AI features to iPhones in one of the world’s most regulated and competitive markets. Without it, iPhones could fall behind smartphones from Chinese rivals like Huawei and Xiaomi.
Government Scrutiny
White House and House Select Committee on China officials have directly raised concerns about the deal with Apple executives, according to the three people, who spoke on condition of anonymity. During meetings in Washington, government officials questioned the terms of the deal, the data Apple would share with Alibaba, and whether Apple would sign any legal commitments with Chinese regulators. In a March meeting with the House committee, Apple executives were unable to answer most of these questions.
Alibaba’s partnership would help Apple compete with homegrown competitors in China. The deal’s potential cancellation highlights the challenges Apple faces in navigating US-China tensions while trying to maintain its market share in China.
