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Apple's Tim Cook Is Visiting China: Why It Matters

By Kapit all - Updated Apr 7, 2017 at 6:06PM

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Will the issues surrounding Apple's business in China have an effect on these Chinese tech stocks?

Apple's (AAPL) presence in China is poised for growth, reports Reuters, who describes China as "just scratching the surface" of the Chinese marketplace. But the strong demand for Apple's products hardly makes its integration an easy one.

Here are some of the big hurdles:

1. Carriers and compliance: Apple faces many issues in the Chinese marketplace, one of which is compliance with Chinese carriers, including China Telecom, Unicom, and China Mobile. China Mobile is looking to strike deals with Apple, but compatibility problems with the networks have yet to be resolved.

2. Trademarks: Apple is in a legal battle with Chinese firm Proview, a financially weak tech company, over the local rights to the iPad trademark. "We are willing to fight the trademark case for five, 10 years or even longer," said Hejun Vanguard Group, a consulting company representing Proview creditors. "We'll see how long the biggest company in the world can exploit the law and intellectual property rights in China."

Meanwhile, the dispute has kept Apple from launching the new iPad in China, sparking waves of smuggling activity of the gadget from the U.S. and Australia.

3. Foxconn Technology: The Taiwanese firm that assembles iPhones and iPads has been accused of having sweatshop-like conditions unfitting of the world's largest and most successful company. Activists have made it clear they expect Cook to address those conditions during his visit to China.

Apple reports its compliance to a 60-hour work week rose to 89% in February, with the average work week 48 hours long, according to a survey of 500,000 workers at suppliers worldwide.

What's at stake
It is important for Apple to work through these issues because of the significant investment and growth opportunities China presents.

Reuters writes: "China is the world's largest mobile market and already Apple's second-biggest market overall, but the firm has been losing ground there to arch rival Samsung Electronics in smartphones and has yet to introduce the latest version of its top-selling iPad to the country."

Business section: Investing ideas
Are the problems of Apple shared with other Chinese tech companies? Or will Chinese companies win out because they are on native land, gaining favoritism from authorities?

Here is a list of Chinese tech stocks, with net institutional buying in the current quarter, for you to consider. (Click here to access free, interactive tools to analyze these ideas.)

1. Phoenix New Media Limited (Nasdaq: FENG): Provides content on an integrated platform across Internet, mobile, and TV channels in the People's Republic of China. Net institutional purchases in the current quarter at 4.6M shares, which represents about 24.63% of the company's float of 18.68M shares.

2. LDK Solar (NYSE: LDK): Engages in the design, development, manufacture, and marketing of photovoltaic (PV) products; and development of power plant projects. Net institutional purchases in the current quarter at 2.5M shares, which represents about 3.97% of the company's float of 63.05M shares.

3. Qihoo 360 Technology (Nasdaq: QIHU): Provides Internet and mobile security products in the People's Republic of China. Net institutional purchases in the current quarter at 18.7M shares, which represents about 53.98% of the company's float of 34.64M shares.

4. Spreadtrum Communications (Nasdaq: SPRD): Operates as a fabless semiconductor company that designs, develops, and markets baseband processor and RF transceiver solutions for wireless communications and mobile television markets. Net institutional purchases in the current quarter at 9.6M shares, which represents about 30.21% of the company's float of 31.78M shares.

5. 21Vianet Group (Nasdaq: VNET): Provides carrier-neutral Internet data center services in China. Net institutional purchases in the current quarter at 4.1M shares, which represents about 14.53% of the company's float of 28.21M shares.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.

Kapitall's Rebecca Lipman does not own any of the shares mentioned above. Institutional data sourced from Fidelity.

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