Will Apple's China Woes Continue in 2017?

Last week, Apple announced plans to set up two new research centers in China, in a bid to strengthen its position in what has become its largest overseas market in recent years. After a period of rapid growth, Apple’s China business slowed down significantly in 2016 as iPhone sales in the People’s Republic stuttered in the face of fierce competition from domestic brands such as Xiaomi, Oppo, vivo and Huawei.

Despite the recent slowdown, China remains a key market for Apple, as our chart illustrates. According to UBS estimates based on Gartner data, Apple sold 58 million iPhones in China last year, making it the second largest market for Apple’s pocket-sized cash cow. UBS expects Apple to suffer another down year in China in fiscal 2017, but anticipates things to turn positive again in the long term.

After announcing the new research centers and pledging R&D investments of $508 million on Friday, Apple CEO Tim Cook attended the China Development Forum in Beijing on Saturday, where he advocated for an open China and for globalization in general. It has been widely speculated that Apple could be one of the main victims of a possible trade war between China and the United States, should President Trump follow through on his threat to impose a punitive tariff on Chinese imports.