In the middle of 2018 Apple raced to become the world's first $1 trillion company in terms of market value. After admitting in early January to weakness in its Chinese business, its worth has tumbled back to a mere $700 billion and change.
Apple's fall highlights short-term risks both from the U.S.- China trade war and a looming Chinese economic slowdown. But it provides a wider and more significant warning for the long-term too: that an era in which global companies have come to rely on rapid Chinese growth may now also be drawing to a close.
Tim Cook, Apple's CEO, naturally blames the company's difficulties on China's weakening economy. Anxious customers are putting off replacing their handsets. Trade worries are making consumers gloomier still. "It's mostly macro," as Rod Hall, an analyst at Goldman Sachs, said of Apple's woes.
Cook still risks exaggeration: Apple is at least partly responsible for its own fate. iPhones are expensive compared to rival Chinese smartphones. Local competitors, not least Huawei, seem to be doing fine. Apple is suffering elsewhere too, for instance from its weak or restricted offerings in areas like music and apps, according to Matthew Brennan, a China technology expert.
But, even allowing for Cook's excuses, the point he makes about China is right. Last week's turmoil is unlikely to be the end of his troubles in the Middle Kingdom. The short term outlook is difficult, but the real challenges are now long term. Those betting on an early recovery will be disappointed.
China's economy is still set to grow at a brisk 6.2% in 2019 according to the International Monetary Fund. That sounds healthy. But a much steeper slowdown is at least possible. The country's latest data in December showed factory output contracting for the first time in nearly two years.
Hall at Goldman Sachs predicts renewed falls in Chinese demand will further dent Apple's performance during the early part of this year. The trade war is hardly helping. U.S. and Chinese negotiators meeting in Beijing this week may magic up a deal to end hostilities, but the odds seem stacked against them too.
More to the point, so long as the trade war continues, Apple must expect to be on its front line, given how intricately its supply chains are enmeshed in the region. At a time when Chinese authorities are grabbing Canadian hostages in response to the arrest of Huawei executive Meng Wanzhou last month, the risk that President Xi Jinping might also decide to disrupt Apple's supply chain is real enough. Little wonder some of the Cupertino-based group's suppliers are reported to be moving production to Vietnam.
But it is the longer-term lessons of the company's New Year upheavals that are more alarming, namely the likely end of the rollicking years of Chinese expansion that have sustained Apple and other major multinationals. As recently as 2015, Cook's company posted multiple quarters in which revenue growth in greater China topped 100% year-on-year. In its most recent results last November that had dropped to 16%; Cook's early January warning suggests it is set to fall still further.
In this, Apple is hardly alone. Car giants General Motors, Jaguar Land Rover and Volkswagen have all enjoyed recent bumper rides in China, and all are now suffering. The same is true for luxury goods groups, hence why shares in France's LVMH and Gucci-owner Kering nose-dived last week on Apple's news, as they too begin grappling with the combination of sinking Chinese growth and toxic trade war politics.
The end to China's boom years will of course be complex. Some foreign businesses will continue to prosper. Carmaker BMW last year unveiled plans to open a third giant factory in Liaoning Province, while Chemical group BASF announced a new $10 billion project in Guangdong. In both cases, the foreigners were also allowed to hold majority stakes in their investment, a prize they had previously been denied.
It is plausible that China's authorities might even become more welcoming of some foreign investors from countries like Germany and Japan, as President Xi seek trade war allies against the U.S. In any case, China's middle class is still growing, and it's members buy far fewer cars and watches per capita than richer Asian nations like Japan or Singapore. Over the long-term, many foreign businesses will make money serving them.
Perhaps the best scenario is a gradual decline to growth rates below 6%. The trade war could make that difficult, even in the short term. But the long term worries look worse, given the clear risks of more dramatic stalling in an economy struggling to cope with problems ranging from rapid population aging to the debt mountains left behind by decades of state-led infrastructure investment.
Worse, China's government shows few signs of introducing the kind of widespread political reforms that could revitalize its economy or make life easier for most foreign investors. "We have a slowdown, and we have only piecemeal 'opening up'," says Joerg Wuttke, former head of the European Union Chamber of Commerce in Beijing. "China just is a harder sell for many big multinationals compared to five or ten years ago."
Crucially for multinationals, there is no obvious replacement for China either. Cook has talked optimistically about Indian consumers picking up the slack. Others hope growth in a grab-bag of smaller emerging Asian economies might help. Sadly for them there is no sign that any of this is happening.
Unlocking India's market is proving especially tricky. Compared to China, the Indian middle class remains tiny -- perhaps fewer than 20 million-strong -- and famously thrifty. Despite plenty of hype, neither iPhones nor Louis Vuitton handbags nor VW sedans have made a mark.
For a decade or more, many of the world's best-known companies built their global expansions on the back of rocketing Chinese demand. But that period of fast growth was unusual. It is not going to return, and it is not going to be repeated elsewhere. Put another way, as Apple goes sour on China, it is unlikely to be alone.
James Crabtree is an associate professor in practice at the Lee Kuan Yew School of Public Policy at the National University of Singapore. He is author of "The Billionaire Raj."