Reports say China has barred the use of Apple smartphones in central government agencies, leading to a sharp drop in Apple’s shares.

Shares of the world’s biggest publicly-traded company were down 2.8 percent at $177.79 in late morning trading on Thursday, after falling 3.6 percent on Wednesday following a Wall Street Journal report that China barred the use of Apple smartphones in central government agencies.

It was followed Thursday by a Bloomberg News report that China planned to expand the ban to government-backed agencies and state companies, broadening the effect of the policy in a centrally-planned economy.

The move came amid intensifying tensions between Beijing and Washington.

China has increasingly emphasised using locally made tech products, as technology has become a major national security issue for Beijing and Washington.

Government agencies and state-owned enterprises (SOEs) in both countries have been the first and most important areas to push forward such a campaign.

The Bloomberg report said a release last week of a Huawei smartphone employing a made-in-China processor was hailed in Chinese state media as a “triumph” in the wake of US sanctions.

Government discourages iPhone usage

Staff in at least three ministries and government bodies were told not to use iPhones at work, sources familiar with the matter told the Reuters news agency but declined to be named due to the sensitivity of the situation.

One of the sources said they had not yet been given a deadline to cease their iPhone use and it was not immediately clear how widely the ban was being enforced.

Apple and China’s State Council Information Office, which handles media queries on behalf of the government, did not immediately respond to requests for comment.

In 2020, state-owned Chinese financial publication Economic Observer reported that some government agencies had implemented rules to ban officials from using iPhones due to Apple’s strict privacy rules that make it difficult for anticorruption officials to access and investigate suspects’ phones.

Move may stall Apple’s sales growth

China is one of Apple’s biggest markets and generates nearly a fifth of its revenue. Apple, together with its suppliers, employs thousands of workers in China and CEO Tim Cook stressed its long ties with the country during a March visit to Beijing.

The extension of a ban imposed more than two years ago signals growing challenges for the US company, which relies heavily on China for revenue growth and manufacturing.

“We believe the restrictions have the potential to slow Apple’s sales growth in China,” D A Davidson analyst Tom Forte said.

“This could provide an additional challenge for the company, as its revenues from China have already been negatively impacted by a challenging macroeconomic environment in that country.”

Briefing.com analyst Patrick O’Hare said the Apple situation has implications for other tech companies.

“The worry for the market is that, if China purposely chooses to make business difficult for a company like Apple, which has a good and important working relationship in China, then it can do so for a lot of other US companies doing business in China,” O’Hare said.

The chairman of the US House panel on China said that the ban was “not surprising”.

“This is textbook Chinese Communist Party (CCP) behaviour – promote PRC [People’s Republic of China] national champions in telecommunications, and slowly squeeze western companies’ market access,” US Representative Mike Gallagher told Reuters.

“American tech companies seeking to cozy up to the CCP must realise the clock is ticking,” added Gallagher, a Republican.