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Red iPhones & An Appearance By Tim Cook: How Apple Is Going On The Charm Offensive In China

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Apple has long faced strong headwinds in China, where fierce competition and regulatory hurdles have made life difficult for the U.S. tech giant.

But now, in an effort to boost sales of its iPhone, the company has embarked on a new charm offensive in the world’s second-largest economy.

Apple announced last week that it will build two more research centers in Shanghai and Suzhou, pledging to invest at least 3.5 billion yuan ($507 million) in research and development inside China. The announcement came as CEO Tim Cook was attending the government-hosted China Development Forum, where he defended globalization in a rare public speech and called on Beijing to open up further to foreign investment. He also held a behind-the-door meeting with Xu Lin, director of the Cyberspace Administration of China.

Read MoreApple's Path To Victory In China After A Painful 2016

Apple’s new red aluminum iPhone also appears to have won over Chinese fans. The phone, part of the company’s decade-long partnership with (RED), which contributes to the Global Fund to fight HIV and AIDS, has created a buzz in the Chinese social space. The reason? Chinese tradition views red as an auspicious color reserved for weddings and New Year celebrations. So carrying a red iPhone makes one feel “pretty joyous and festive,” user Wumoer wrote on China’s Twitter equivalent, Sina Weibo.

But even with the red iPhone, how much success can Apple really expect to enjoy in a country where local rivals such as Huawei and Oppo have managed to elbow the iPhone aside with their cheaper but high-quality alternatives?

“Red is indeed a good color for China,” said Nicole Peng, a research director at market research firm Canalys. “But the most important purchasing factors are not color but price points and user habits.”

That means Apple’s market share will remain subdued in China, where it was the fourth largest smartphone maker by shipments last year, down from No.1 in 2015, when consumers flocked to the larger screen iPhone 6 and iPhone 6Plus, according to IDC. In its fiscal first quarter ending December 31, the Greater China area was the only region where Apple saw a decline, with sales falling 12% from a year ago, as users didn’t warm much to the iPhone 7 and 7Plus, while local rivals continued to gain ground.

Positive news ahead?

There will definitely be a pickup next year, after Apple launches the next generation iPhone, which analysts believe will carry better screen displays, frontier technologies such as augmented reality and more advanced user recognition systems. The product will also coincide with a consumption habit change in China, as more users want to try higher-end devices after growing tired of cost-effective phones made by local companies, said Canalys’s Peng.

“The next iPhone will redefine what it means to be a high-end phone,” said Gartner research director CK Lu. “Chinese companies like Huawei and Oppo are also trying to make more expensive devices, but this [the new iPhone] will be a major blow to their efforts.”

Read More: Apple's China Challenger Is Not Huawei Or Xiaomi, But OPPO

But it isn’t all good news. Even the new iPhone can’t fix Apple’s biggest headache in the country - the lack of service offerings.

While the company’s service growth in other markets has sparked rosy forecasts, Apple in China “lacks substance,” said Peng. The company struggles to monetize its Chinese user base after authorities abruptly shut down its iBooks and iTunes Movies services last year. The Apple Pay service, meanwhile, gained little ground under the dominance of Tencent’s Ten Pay and Alibaba affiliate Ant Financial’s Alipay, which together hold more than 90% of China’s online payments market, according to consultancy Analysys International.

However, the investment in research and high-level meetings with senior officials could help pave the way for enhanced services, argued Forrester research director Travis Wu. Chinese authorities will almost certainly appreciate Apple’s efforts when a number of American firms are shifting positions back to the U.S. in wake of President Donald Trump’s drum-beating for U.S-based manufacturing. Oracle, for example, laid off 200 people in its Beijing research center in January, triggering a protest where angry workers said the decision was an attempt to please Trump. The company denied the accusations.

But expanding its content offering is also a risky business. Beijing doesn’t want its citizens to be overexposed to foreign influences. In March, officials ordered publishers to cut back the volume of foreign children’s books published in the mainland this year, according to multiple media reports. Apple previously removed the New York Times app from its app store in China at the request of mainland authorities.

“Apple needs to improve its relationship with the central government so it can understand compliance and regulatory issues better.” Peng said. “The China investments are a baby step towards this goal.”

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