Taiwan-based Hon Hai Precision Industry, the world's largest contract electronics producer, is considering spending 30 billion yuan to set up an assembly factory in Hohhot, Inner Mongolia, to cut shipment time to Europe, according to the city's mayor, Tang Aijun.
He said the planned factory, to be developed in phases, was designed to be capable of generating 50 billion yuan to 80 billion yuan sales annually and would complement the group's production base in Shenzhen.
However, the investment plan was pending a successful test on timely shipment of China's first international container train between Shenzhen and the Czech Republic via Hohhot and Russia, the mayor said. 'We have negotiated the project with [Hon Hai chairman] Terry Guo and he will make a decision soon,' Mr Tang said.
A spokesperson for Hong Kong-listed subsidiary Foxconn said Hon Hai was 'studying the investment opportunity' but declined to comment further. Hon Hai last month reported that sales in the first four months of this year rose 40 per cent to HK$77.99 billion.
The planned investment underscores a trend of manufacturers drifting from the more expensive Guangdong to the northwest region of the country where wages and rents are lower. This trend is becoming more viable as transportation and the infrastructure are increasingly being improved.
Mr Tang said Hon Hai aimed at reducing shipment time to about 21 days by rail between Hohhot and the Czech Republic from the existing 45 days by sea from Shanghai.
'A trial will be completed later this month as China's first international container train left Shenzhen on May 29 and is due to arrive in Czech Republic in 29 days,' he said.
The train is carrying 52 20-foot containers of Hon Hai goods.
An analyst of a European brokerage said marine shipment was about half the cost of rail but the penalty on delays was well above what might be saved.
Foxconn plans to build a US$174 million plant outside Prague to produce LCD monitors, according to a report last month by Czech news agency CTK. It said the factory was due to be completed in June 2008 and would complement another plant the company has nearby.
The Hohhot factory, if it materialises, could benefit Foxconn, one of the world's biggest handset case manufacturers which leases its parent's overstretched Shenzhen production facilities, according to analysts. They said the project was likely to assemble the group's core products - everything from personal computers for Hewlett-Packard to handsets for Nokia and PlayStation 2 game consoles for Sony.
A Lehman Brothers research report estimated global shipments of notebook computers and personal computers would grow about 30 per cent annually this year and next.
On the fast track
Goods will take only 21 days to reach the Czech Republic from Hohhot
Possible annual sales the plant could generate 80b yuan