That would mean public money couldn't be used to buy iPhones, iPads, or Macs, which could put a dent into sales in an important market for Apple. Last quarter, China represented nearly 16 percent of the company's sales and it offers the biggest chance for the high growth that investors demand.
The reason given for the exclusion were security concerns. China has said that iPhone location tracking is a "national security threat," a charge that the company denies. But Apple devices typically score relatively well in security. The real issue may be that companies have become tools that the Chinese government uses to further its global economic and political interests.
Economic pressure becomes political levers
"Their goal is to use economic resources to gain political control," said George Haley, director of the Center for International Industry Competitiveness at the University of New Haven, in an interview with CBS MoneyWatch. "You can twist people's arms, take advantage of monopolistic prices, and subordinate [countries'] government policies to the Chinese will through the other government's corporate management. The U.S. is highly susceptible to this strategy because it's one of the few countries to allow foreign companies and governments to lobby the government."
Put differently, the government of China will use economic and legal findings and sanctions to put pressure on large corporations. Top managers of those companies go to their home governments to push for the changes that China wants.
An example is the global dominance of China's photovoltaic (PVC) solar cell manufacturers. Low prices have forced out many competitors in other countries. The infamous case of U.S. solar cell company Solyndra going bankrupt when it had a $528 million federally-guaranteed loan was largely due to the drop in PVC prices due to China's influence. But "the bulk of their [solar] companies are technically bankrupt," Haley said. They are only competitive because China enables the losses they face.
The political pressure showed in a recent standoff with the European Union, which planned sanctions for solar panel dumping, an economic term that refers to one country selling products at a loss in a second country to undermine the latter's industry. "[China] put pressure on the German government by threatening German exports to China," Haley said. Germany, in turn, put pressure on the EU to moderate its stance. And then China also threatened wine imports, which would have affected Italy, France, and Spain but left Germany unscathed, because of its support.
In China's current round of actions, the expressed concerns over Apple security are likely the response to U.S. charges that China has used computer hacking to break into government and corporate systems for government and economic espionage. Apple also isn't the only target.
Other companies targeted
Microsoft (MSFT) found itself under an antitrust probe last month. Chip maker Qualcomm (QCOM), which has been extremely successful in the mobile and wireless markets, has been declared as having a monopoly in the country.
"Qualcomm has a really interesting history in China and because of China," Haley said. "Qualcomm has for well over a decade gone through a period of being harassed and then being supported and then being harassed again." Haley claims there's a strong correlation between periods of harassment and drops in the company's stock price. "That's one way they can affect company management, by affecting corporate share price."
China is likely to be pursuing a double agenda: Political pressure and an interest in supporting the domestic electronics industry. Both Qualcomm and Apple are major players in the mobile industry. China wants to promote its own smartphone industry and a state-owned company just purchased RDA Microelectronics, a semiconductor company that makes chips for the cellular industry.
The trade wars also extend beyond high tech. "Chrysler has also been charged with being a monopoly," said Haley, even though it is far from being a dominant force in China's automobile industry. "[The regulations are] designed in such a way that if they decide they don't like your management or want to punish a company for its government's actions, then they can. Their activities demonstrate to the companies that if they don't get the American government to change its policies, then they're going to suffer for it."