Attempts by Apple to deploy its AI technology in China have hit regulatory roadblocks, highlighting the growing challenges foreign device manufacturers face in one of the world’s largest telecommunications markets. The Cupertino-based company’s recent struggles underscore a shifting landscape where regulatory compliance increasingly demands collaboration with domestic AI providers.
The situation became especially evident three months ago when Apple’s iPhone 16 launch in China failed to generate enthusiasm among consumers seeking advanced AI capabilities. The launch’s impact was further diminished by Huawei Technologies’ well-timed release of its AI-enabled device, which showcased locally-approved artificial intelligence features that Apple has yet to implement in the region.
According to senior officials from the Cyberspace Administration of China, foreign device manufacturers have to submit LLMs used by AI features on phone hardware with local authorities for approval or face significant delays. The directive, emphasised during the recent World Internet Conference in Wuzhen, specifically pointed to using Chinese firms’ pre-approved large language models (LLMs) as a path to clearance.
Despite Apple’s CEO Tim Cook’s third visit to China this year, which included participation in a CEO summit with Chinese Premier Li Qiang, the current situation demonstrates the gravity of local regulatory challenges. The company has initiated exploratory discussions with Chinese tech giants, including Baidu, ByteDance, and AI startup Moonshot, seeking partnerships that could facilitate the deployment of its AI features in the Chinese market.
Apple’s stakes are exceptionally high, which has weakened its negotiating position in China. Despite China accounting for 17% of Apple’s total revenue last year, the company experienced an 8% decline in regional sales amid intensifying competition from Huawei and other domestic providers of hardware and accompanying AI service.
JP Morgan analyst Samik Chatterjee projects that without successful partnerships with local firms, regulatory uncertainty could delay Apple Intelligence’s introduction in China until at least the second half of 2025. The timeline threatens Apple’s competitive position in a market where domestic manufacturers rapidly advance their AI capabilities and already have authorities’ approval for their offerings.
Apple’s current AI deployment strategy outside China relies on on-device processing, private cloud compute servers, and OpenAI’s ChatGPT for advanced queries. However, this approach faces significant hurdles in China, where regulators require all companies offering generative AI services to undergo rigorous official testing of their models.
The situation reflects a broader trend in China’s telecommunications sector, where regulatory requirements increasingly favour domestic technology providers. Foreign device manufacturers must now navigate a complex landscape where technical capabilities no longer guarantee market access.
The emphasis on local partnerships and the use of domestic AI models suggests a future in which success in the Chinese market may depend as much on regulatory compliance as technological innovation.
China’s regulatory framework (and increasingly, those of the EU and Australia) poses challenges for companies like Apple, which typically maintains strict control over its ecosystem. The requirement to potentially integrate Chinese-developed LLMs represents a significant departure from the company’s usual product development and deployment strategies.
As the situation evolves, it is a crucial case study for other foreign device manufacturers looking to deploy AI-enabled products in China. The outcome of Apple’s regulatory navigation could set important precedents for others seeking access to the world’s largest telecommunications market.
Beijing pushes major Chinese telcos to raise dividends
Three major Chinese telcos are dramatically changing their financial strategies and shifting from reducing capital costs to offering higher dividend yields.
As reported by Nikkei Asia, this shift is linked to the increasing interest from the Chinese government in the performance of the stock market and its directive to accord more importance to shareholder returns within state-owned enterprises.
China Telecom followed this logic but took it a step further, as interim dividends increased by 16.7% to 0.1671 yuan per share, and the total payout amounted to 15.29 billion yuan. The dividend growth rate itself far outstrips the increase in the company’s net profit rate, which stands at 8.2%. However, Ke Ruiwen, chairman and CEO of the company, decided to set the bar even higher and announced the goal to increase the dividend payout rate to over 75% within the next three years; in 2020, this rate was just over 40%.
This change in China Telecom’s strategy is complemented by a target to reduce new expenditures throughout the year. More precisely, annual capital expenditure is expected to decrease by 2.9% to 96 billion yuan.
The world’s largest mobile operator, China Mobile, which has over 1 billion subscribers, is also among the dividend front-runners. China Mobile announced plans to raise its interim dividend by 7% to 2.6 Hong Kong dollars per share. As a result, it virtually surpassed the growth in its net profit, which was 5.3%. The company will join many of its peers in promising to lift the dividend payout ratio above 75%, starting from 2024. However, China Mobile will counter this windfall to its shareholders with a reduction in annual capital spending by 4% to 173 billion yuan.
A trend of capex-cutting is observed among the three operators, including the comparatively smaller China Unicom, which has just declared an interim dividend up 22.2%, accompanied by a 13.4% reduction in its capital spending for the year to this point. The current forecast indicates a 12% decrease in annual investment to 65 billion yuan, while maintaining a 55% dividend payout ratio.
Given the current economic conditions in China, China Unicom’s approach of offering relatively higher dividends, alongside relatively lower capital spending, has proven appropriate. This strategy has undoubtedly been beneficial in the stock market, as the shares of telecom operators have well outperformed the benchmark Hang Seng Index this year. As of today, China Unicom leads in terms of share price increases, having reached an impressive 34%, surpassing the index’s modest growth.
The telecom giants’ ability to pivot towards this dividend-focused strategy is largely due to the completion of major 5G infrastructure investments. China Telecom’s Ke has confirmed that the upcoming 5G-Advanced technology will not require substantial additional investment. Similarly, China Mobile’s Yang has indicated that 6G commercial use isn’t expected until 2028, at the earliest, providing a substantial window for the companies to allocate resources elsewhere.
This strategic shift aligns closely with the directives issued by the State-owned Assets Supervision and Administration Commission in 2022. The commission has long called for key state-owned enterprises to improve the quality of their listed arms, particularly by enhancing the management of market value. These improvements include strengthening corporate governance, promoting disclosure standards, carrying out share buybacks, and offering more substantial cash dividends.
Now, the commission has gone further by suggesting that performance reviews for executives be tied to market performance, with an additional focus on raising cash dividends to improve returns for shareholders. While this approach undoubtedly benefits shareholders, it is also important to note that the single greatest beneficiary is the commission itself, as it is the ultimate parent entity of all three telecom groups.
This pivot represents a significant change in how China’s state-owned telecom giants balance their investments in future technologies with the immediate demand for shareholder returns, reflecting broader shifts in China’s approach to managing its state-owned enterprises in a challenging economic environment.
Source: Telecomtech
