The iPhone is too expensive for Chinese customers, so Apple is offering them interest-free loans

Key Points
  • In an effort to boost falling sales in the region, Apple introduced two-year financing to Alipay users who buy their products.
  • Apple saw a $5 billion drop in revenue in China during Q1 2019 compared with the previous year.
  • Apple hopes to make its products more affordable to customers by taking the sting out of their high price tags.
Tim Cook, Apple CEO
John Chiala | CNBC

In an effort to make Apple products more affordable to Chinese consumers, Apple is working with Chinese mobile payments network Alipay to offer up to two years of interest-free financing, The Wall Street Journal first reported.

The companies reportedly told customers about the new borrowing option this week, which requires a minimum purchase of 4,000 yuan ($595) to qualify, the Journal reported. This would give more customers the ability to buy the company's latest iPhone models, including the XR, which is the most affordable option in Apple's new lineup at 6,499 yuan, according to Apple's China website.

Sales growth in China has been a concern for Apple investors since CEO Tim Cook warned in January of economic pressures in the region and slowing iPhone sales. In its first-quarter 2019 earnings, Apple reported a nearly $5 billion drop in revenue from China compared with the previous year, to $13.17 billion during the December quarter.

"If you look at our results, our shortfall is over 100 percent from iPhone and it's primarily in greater China," Cook told CNBC's Josh Lipton in an interview after Apple's revised guidance announcement in January. "It's clear that the economy began to slow there for the second half and what I believe to be the case is the trade tensions between the United States and China put additional pressure on their economy."

Cook had also talked in the interview about adding payments to dull the sting of its high price tags. But Apple's decision to work with Alipay to offer the financing is an interesting choice since its own digital wallet service, Apple Pay, has failed to gain much market share in the region, according to the Journal, which reported that Alipay has more than 700 million active users in the region.

Huabei, the Alipay service that will finance Apple purchases, acts like a virtual credit card that Apple would likely pay for upfront with a small percentage of a product's price, according to the Journal. While Alipay previously offered interest-free financing for one year on Apple products, the new 24-month offer will be available until March 25, the Journal reported.

Alipay's parent company, Ant Financial, declined to comment and Apple did not immediately respond to CNBC's request for comment.

Read more in The Wall Street Journal.

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Watch: Apple's Tim Cook blames China for weak iPhone sales — Here's how five experts reacted to the news

Apple's Tim Cook blames China for weak iPhone sales — Here's how five experts reacted to the news
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