ReutersThe scrutiny is the latest example of the challenges that Apple has run into as it tries to sustain its businesses in the United States and China at a time of rising geopolitical tensions. Three years ago, the U.S. government succeeded in pressuring the company to abandon a deal to buy memory chips from a Chinese supplier: Yangtze Memory Technologies Corp., or YMTC. More recently, the company has been challenged by U.S. tariffs on Chinese-made products such as the iPhone, threatening to cut into the company's profits.
Walking away from an Alibaba deal would have far graver consequences for Apple's business in China, which accounts for almost one-fifth of the company's sales. The partnership with the Chinese tech company is critical to bringing AI features to iPhones in one of the world's most highly regulated and competitive markets. Without the Alibaba partnership, iPhones could fall behind smartphones from Chinese rivals such as Huawei and Xiaomi.
Officials at the White House and the House Select Committee on China have raised the deal directly with Apple executives, said the three people, who spoke on the condition of anonymity because they were not authorized to speak to the media. During meetings in Washington with senior Apple executives and lobbyists, government officials asked about terms of the deal, what data Apple would be sharing with Alibaba and whether it would be signing any legal commitments with Chinese regulators. In the meeting with the House committee in March, Apple executives were unable to answer most of those questions, two of these people said.
Washington's concern about the deal has been heightened by a deepening conviction that AI will become a crucial military tool. The technology, which can write emails and develop software code, has the potential to coordinate military attacks and control autonomous drones. Worried about a future U.S.-Chinese conflict, Washington officials have tried to limit Beijing's access to AI technology, cutting off its ability to make and buy AI chips.
Rep. Raja Krishnamoorthi, D-Ill., the ranking Democrat on the House Permanent Select Committee on Intelligence, said in a statement that it "is extremely disturbing that Apple has not been transparent about its agreement." "Alibaba is a poster child for the Chinese Communist Party's military-civil fusion strategy, and why Apple would choose to work with them on AI is anyone's guess," he said. "There are serious concerns that this partnership will help Alibaba collect data to refine its models, all while allowing Apple to turn a blind eye to the fundamental rights of its Chinese iPhone users."
Apple, the White House and Alibaba did not provide comment. Apple hasn't publicly acknowledged the AI deal in China, but Alibaba's chair, Joe Tsai, confirmed it publicly in February.
There is concern in Washington that an Apple deal with Alibaba would set a problematic precedent. U.S. companies could help Chinese AI providers reach more users and use the data they collect from those users to improve their models. The risk would be that Baidu, Alibaba, ByteDance and other Chinese companies could then use those improvements to help China's military.
To limit U.S.-Chinese collaboration, the Trump administration has discussed whether Alibaba and other Chinese AI companies should be put on a list prohibiting them from doing business with U.S. companies, the people familiar with the deliberations said. Defense Department and intelligence officials have also been scrutinizing Alibaba's ties to the Chinese Communist Party and the People's Liberation Army.
Greg Allen, director of the Wadhwani AI Center at the Center for Strategic and International Studies, a think tank, said Apple's partnership ran counter to the bipartisan efforts in Washington to slow China's AI development. Apple could be motivated to help Alibaba improve its AI system because its AI could make iPhones in China more useful, valuable and easier to sell.
"The United States is in an AI race with China, and we just don't want American companies helping Chinese companies run faster," Allen said.
In addition to this scrutiny, Apple CEO Tim Cook has faced new criticism from President Donald Trump. During Trump's trip across the Middle East this past week, he said he had "a little problem" with Cook because Apple was beginning to build products in India rather than the United States.
"We're not interested in you building in India," Trump said he had told Cook. "India can take care of themselves. They're doing very well. We want you to build here."
Last year, Apple revamped the iPhone with new AI abilities that it called Apple Intelligence. It said iPhone users would be able to use its AI product to summarize notifications and gain access to writing tools that could improve emails and other messages. It also revealed an improved Siri virtual assistant that could combine information on a phone, such as a message about someone's travel itinerary, with information from the web, such as a flight arrival time.
Apple struck a partnership with OpenAI to support some of its AI abilities. OpenAI's chatbot, ChatGPT, is currently answering questions when prompted on iPhones in the United States.
(The New York Times has sued OpenAI and its partner, Microsoft, accusing them of copyright infringement regarding news content related to AI systems. OpenAI and Microsoft have denied those claims.)
Because OpenAI doesn't operate in Beijing, Apple needed to find a local partner to give iPhones in China the same performance as those in the United States. The company spoke with several Chinese tech companies before striking a deal with Alibaba. This year, it asked Chinese regulators to approve the AI features.
Congressional officials were alarmed that Apple had requested approval from Chinese regulators for the Alibaba partnership, two people familiar with their concerns said. Because AI is an emerging field, the committee worried that Apple might make concessions or sign an agreement that would make it subject to Chinese laws.
Apple hasn't provided an update on when the AI features will become available on its iPhones in China. During calls with analysts this year, Cook said sales of iPhones had been better in markets where Apple Intelligence was available.
If the deal with Alibaba collapses, there is also a potential knock-on effect because Alibaba is a major e-commerce retailer that could sell and market iPhones, said Richard Kramer, a senior analyst at Arete Research, an investment advisory firm. He said that kind of partnership had the potential to boost the iPhone after Apple's share of smartphone sales in China fell to 15% last year from 19% in 2023.
Without Alibaba, Chinese iPhone users could download AI apps, Kramer said. It would make for a more difficult experience than rivals might offer.
"People will still buy their phones, but it will make it harder," he said.
