Apple Made A $275B 'Secret Deal' With Beijing To Avoid Facing Regulatory Heat In China: Report

Apple Inc AAPL has concluded a secret five-year agreement with the government of China, worth $275 billion, focused on shoring up the country’s economy and more.

What Happened: The Apple-China deal, first reported by The Information (via Apple Insider,) was signed by  CEO Tim Cook during a visit to the country in 2016 at a time when the iPhone maker faced regulatory heat.

Cook reportedly personally lobbied Chinese officials through multiple visits and signed the deal with China’s National Development and Reform Commission shortly after announcing a $1 billion investment in Didi Chuxing DIDI. 

Apple and the Chinese government kept the deal under wraps — a step that was construed to be politically wise by political economist Victor Shih.

"Apple likely wanted to avoid the optics of groveling to the Chinese government," said Shih.

Under the framework of the deal, Apple agreed to create "the most advanced manufacturing technologies" and "support the training of high-quality Chinese talents,” reported Apple Insider.

The deal was reportedly supposed to run for five years and an option to extend it for an extra year to May 2022 was included if both signatories did not object.

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Why It Matters: China is both an important market for Apple and is also the company’s vital manufacturing base.

Under the secret agreement, Apple agreed to boost the use of Chinese suppliers for device components and to work with Chinese software firms, and invest in the East Asian nation’s tech companies. The company also pledged to work with Chinese universities on new technologies, according to Apple Insider.

Apple would reportedly invest “many billions of dollars more” than existing spending in China towards R&D centers, renewable energy projects, and retail outlets. 

The tech giant also agreed to “strictly abide by Chinese laws and regulations,” as per Apple Insider.

While the deal purportedly spelled out clearly what Apple’s obligations were, the Chinese commitment to the Cupertino, California-based company was worded more ambiguously. China in turn offered to give Apple “necessary support and assistance.”

Cook’s lobbying caused concern among Apple’s China-based executives who believed that the company could be vulnerable if they did not cultivate their own relationships with Chinese officialdom, reported Apple Insider.

Apple’s first data center, operated by a local Chinese firm, caused controversy as Cupertino largely ceded control over the company’s local users’ data to Beijing.

On Tuesday, Tesla Inc TSLA CEO Elon Musk called China the “biggest kid on the block” and said China will have an economy two or three times that of the United States. He said Tesla had a good relationship with the country.

Price Action: On Tuesday, Apple shares rose nearly 3.5% higher at $171.18 in the regular session and gained another near 0.8% in the after-hours session.

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