Tech

Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.

Now we know the price of access to the world's largest market: $1 billion is the size of the check Apple wrote for a stake in Didi Chuxing, China's biggest ride-hailing company.

Why $1 billion, and why such a large stake, for a company that's more accustomed to smaller, lower-key investments is something for Tim Cook to explain.

Small Bites
Apple's $1 billion investment in Didi Chuxing is the company's second largest
Source: Bloomberg
Note: Excludes deals where Apple isn't sole or majority acquirer.

What's self-explanatory is that Apple is buying its way back into the market as the consumer and political winds shift. It was only a month ago that China suddenly, and secretly, closed down access to Apple's iTunes Movies and iBooks stores. That was a surprise because both stores had opened only six months earlier, and with the government's blessing, the New York Times reported.

While still strong in China thanks to its cool factor, the iPhone has been eclipsed by local players Huawei and Xiaomi, and revenue from the country fell 26 percent in the latest quarter. Cook said in an interview with CNBC's Jim Cramer this month that the smartphone market in China isn't growing, but he maintained his long-term positive view on the country.

China Fears
Apple's shares have fallen 20% from an April high amid concern of a China-led slowdown
Source: Bloomberg

The removal of movies and books, however, makes it that little bit harder for Apple to justify its closed platform in China in the face of a strong Android ecosystem and an unfriendly government attitude toward the California company. Billionaire investor Carl Icahn agrees.

“I got out because I’m worried about China,” Icahn told CNBC last month after exiting his Apple position after at least three years. “You worry a little bit, and maybe more than a little, about China’s attitude.” 

Then there's security, encryption and privacy. To date, Cook has navigated the murky waters of Chinese regulation like an expert, but it's only a matter of time before FBI versus Apple is reenacted as China versus Apple, and that's a battle a foreign company won't win.

By buying into ride-hailing, Cook seems to be thinking outside the box, recognizing that iPhones are not the only way to tap China's growing middle class. The deal may also give him some immunity from negative government or consumer sentiment, since Apple is riding the coat-tails of existing Didi investors Alibaba and Tencent.

As for the deal itself, valuations and size notwithstanding, the investment certainly makes more sense than paying three times as much for a maker of overpriced headphones.

Didi Chuxing, previously known as Didi Kuaidi, is about as sure a thing as you can get in China. Ride hailing has taken off in a way that's hard to replicate in any Western market, and Didi has Uber over a barrel. Xiaoju Kuaizhi, the company that operates Didi, has been in the process of seeking more than $2 billion in a funding round that gives it a $25 billion valuation, Bloomberg News reported. At the same time, that $1 billion is a pittance, given that Apple has more cash than it knows what to do with.

It may be that the iPhone maker is overpaying for the stake, but that matters little, because Apple is really buying a foundation for its future in China.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan in Taipei at tculpan1@bloomberg.net

To contact the editor responsible for this story:
Paul Sillitoe at psillitoe@bloomberg.net