Apple has sealed a landmark partnership with Alibaba to integrate AI into its iPhones in China, a strategic move aimed at strengthening its position in the highly competitive Chinese market. The agreement marks a major win for Alibaba as it establishes itself as a leader in China’s AI sector, competing with companies like DeepSeek, which has gained attention for developing AI models at a fraction of Western costs.
This partnership also puts an end to months of speculation over Apple’s AI strategy in China. Reports from Reuters and The Information indicated that Apple had been in talks with several Chinese tech giants, including Baidu, ByteDance, and Tencent, before ultimately choosing Alibaba.
A Strategic AI Collaboration
Speaking at the World Government Summit in Dubai, Alibaba Chairman Joe Tsai expressed his excitement about the deal. “They talked to a number of companies in China. In the end, they chose to do business with us. They want to use our AI to power their phones. We feel extremely honored to do business with a great company like Apple,” Tsai said.
While Apple’s devices outside China use a combination of Apple Intelligence and OpenAI’s ChatGPT, Tsai did not clarify whether the Alibaba partnership would follow the same model. However, integrating Alibaba’s AI would allow Apple to comply with China’s strict regulations on consumer-facing AI products, as both companies have reportedly submitted regulatory approval materials to authorities.
Market Impact and Apple’s China Struggles
Following the announcement, Alibaba’s Hong Kong-listed shares surged by as much as 9.2% to HK$124.3, their highest level since January 2022, before closing 2.6% higher. Apple has yet to comment on the partnership.
Lian Jye Su, a chief analyst at Omdia, noted that this deal is more than just a nod to China’s AI capabilities. “The partnership is mainly a recognition of Alibaba’s AI capability,” he said. However, analysts caution that Apple’s success in China will depend on how quickly it can roll out new AI-powered features.
“It won’t be an easy fight as local competitors have been aggressively marketing their own AI features,” said Will Wong, an analyst with IDC.
The partnership comes at a crucial moment for Apple, as the company struggles to retain its foothold in China. iPhone sales have declined sharply amid intense competition from domestic rivals, particularly Huawei. A major disadvantage for Apple in the Chinese market has been the absence of advanced AI features, a key selling point for next-generation smartphones.
In 2024, Apple lost its position as China’s top smartphone vendor. The company’s Greater China sales for its fiscal first quarter ending Dec. 28 fell by 11% to $18.51 billion. Market research firm Canalys reported that Apple’s annual shipments in China dropped 17%, allowing domestic brands to take the lead. Vivo captured the largest market share at 17%, followed by Huawei at 16%, pushing Apple to third place with 15%.
Alibaba’s AI Growth
Meanwhile, Alibaba has emerged as an investor favorite in China’s AI industry in early 2025. The company’s stock price has surged over 40% this year, further solidifying its position as a dominant AI player. In January, Alibaba released a new version of its Qwen 2.5 AI model, claiming it surpassed DeepSeek-V3 in functionality and cost efficiency.
As Apple seeks to reclaim market share in China, its collaboration with Alibaba could provide the AI boost it needs. However, the success of the partnership will depend on how effectively Apple leverages Alibaba’s AI technology to enhance user experience and compete with Chinese smartphone manufacturers.
