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Translated Article of the Week: Apple Looks to Turn Around Sales Decline in China

On August 29, 2017, Tencent confirmed that WeChat Pay is officially integrated into App Store on all iOS devices. Users logged into the Chinese App Store can purchase apps or subscribe to Apple Music with WeChat Pay. Other than using bank cards connected with WeChat Pay to make purchases, customers can also use Hua Bei, an online financial service similar to credit cards. Hua Bei currently has more than 100 million users in China, more than half of which are Millennials.

App services have become one of Apple’s most profitable lines of businesses. Last November, AliPay from Alibaba was integrated into the App Store, a contributing factor to the Greater China Area becoming the largest market for the App Store, according to Apple’s Q3 financial report.

During a call with analysts, Luca Maestri, CFO at Apple, pointed out that 185 million Chinese people made purchases in the App Store in Q3 2017, a 12% increase compared to the preceding year. Now with WeChat Pay added, Apple will undoubtedly see even greater profit coming from Chinese customers.

Even though Apple is still a Wall Street darling with its strong financial performances, its operation in China has not been satisfactory. In the past quarter, Apple’s revenue in China fell 10% year-over-year to just over $8 billion. Analysts believe that it was largely attributed to the rise of Apple’s Chinese competitors, including Huawei, OPPO and Xiaomi.

To make up the revenue loss in hardware sales, Apple has been exploring other opportunities. Earlier this year, it was confirmed that Apple would build its first China data center in Guizhou Province as well as R&D centers in Shanghai and Suzhou to develop products optimized for the Chinese market.

Apple’s Q3 revenue from online services hit a record-breaking number of $7.2 billion, driven by the strong growth of Apple Music and iCloud. Even though Apple and Tencent do not see eye to eye on WeChat’s tipping function, Apple still decided to partner with WeChat to increase revenue from the App Store in China. According to Tencent’s latest financial report, more than 600 million WeChat users have connected bank cards to their accounts, out of 963 million total users.

In Q2 2017, the top two third-party mobile payment solutions in China, AliPay and Tenpay (owned by Tencent), took up almost 90% of the market share. Under the circumstances, it is wise for Apple to partner with AliPay and WeChat Pay, even though they are direct competitors of Apple Pay.

Source: Sina