But that reign is over—a casualty, in part, of the escalating U.S.-China technology Cold War.
Apple has fallen from first to third in the country, dethroned by two Chinese companies, Vivo and Huawei, that offered similar features at lower costs as China’s economy slumped.
Now Apple has a new offering in the world’s biggest smartphone market. Deliveries of its iPhone 16e, a cheaper version of its flagship device, will begin in China this week at a starting price of about $600. That makes it eligible for a national stimulus program that gives consumers a subsidy for purchasing smartphones under $800.
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The new device gives Apple a chance to get more competitive in China, but its challenges there go beyond the economy.
While Apple’s newest offering is aimed at thriftier consumers, its Chinese rivals are becoming more sophisticated. On Tuesday in Kuala Lumpur, Huawei announced an international version of its double-folding Mate XT smartphone. The $3,700 device can transform into a 10-inch tablet, with two creases that are noticeable but not overly pronounced.
There is also a less-visible force at play: The Chinese government is giving local companies a helping hand.
Chinese smartphone makers have already released popular artificial-intelligence features, but China hasn’t yet approved AI for iPhones. And Beijing has more directly supported Huawei in particular.
Apple was an unlikely smartphone champion in China. It trailed Chinese brands for years, before getting an assist from Washington.
Around five years ago, the U.S. government imposed sanctions that made it hard for Huawei to buy components essential to making competitive phones. Washington was concerned Huawei would use its smartphone revenue to bolster other businesses, such as cellular-network infrastructure and computer chips.
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As a result, Huawei—which had briefly risen to be a global smartphone leader—saw sales plummet in its home market, China. That downturn benefited Apple, which in 2023 led the Chinese market with a 17.4% share, according to International Data Corporation.
But last year, Apple slipped to 15.5%, falling behind Vivo’s 17.2% and Huawei’s 16.6%.
One reason is China’s economic slowdown has people considering cheaper options, said IDC analyst Will Wong. He said the average selling price of smartphones from Vivo, Huawei and Apple last year was respectively $298, $658 and $1,007.
While Chinese smartphone makers have already released AI features, such as image-editing tools or instantaneous language translation, Chinese regulators haven’t yet allowed Apple to do the same with its AI features, called Apple Intelligence.
In China, AI models need government approval before companies can offer them for public use. Apple’s global partner, OpenAI, doesn’t operate in China. Instead, Apple is working with Chinese tech giants Alibaba and Baidu with the aim of having its AI features approved later this year, people familiar with the matter said.
Apple Chief Executive Tim Cook said in a January earnings call that markets where Apple Intelligence was available on the iPhone 16 had a stronger year-over-year performance versus places where those services weren’t available.
China has propped up Huawei amid the U.S. sanctions, funneling billions of dollars to it in the form of preferential buying contracts and subsidies from organizations connected with the Chinese government or its ruling Communist Party.
Those deals have helped Huawei overcome its handicaps. It developed its own phone operating system after U.S. sanctions made it hard for Huawei to keep using Google’s Android. And though export controls mean Huawei smartphones must run on less-advanced chips, which would normally result in slower performance and worse battery life, Huawei found a workaround.
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“They’ve been able to, through design ingenuity, overcome the export controls,” said G. Dan Hutcheson, vice chairman of TechInsights, a research firm. It studied Huawei’s new double-folding phone by disassembling it. Hutcheson said Huawei compensated for the chip handicap with software that squeezed the most out of the hardware.
Combined with improving its supply-chain snags to produce more midrange phones, IDC analyst Wong said, Huawei sold 50% more smartphones last year compared with 2023, while Apple fell 5%.
“Innovation is how Huawei gained market share in China,” said Alex Huang, chief marketing officer of Huawei’s consumer business. “Even if we have some difficulties because of the U.S. sanctions, every year in the consumer business group, we keep on investing in research and development.”
Write to Stu Woo at Stu.Woo@wsj.com
