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02:23

iPhone 14 delays expected after days of violent protests at Foxconn Zhengzhou factory

iPhone 14 delays expected after days of violent protests at Foxconn Zhengzhou factory

China’s tumbling smartphone exports, Foxconn disruptions raise supply chain concerns as firms seek to ‘avoid risks’

  • Henan province, home to the world’s largest iPhone factory, assembled and exported 8.4 million smartphones in October, down by 1.7 million from the previous month
  • Recent production at the Zhengzhou factory has been disrupted since October, adding to concerns over supply chain relocation
China trade

Coronavirus-induced manufacturing disruptions in China, highlighted by smartphone exports from a major industrial region dropping sharply in October, have increased concerns over supply chain relocation amid an already bleak export outlook.

Henan province, which is home to Foxconn’s mega iPhone factory in its capital city of Zhengzhou, assembled and exported 8.4 million smartphones in October, down by 16.9 per cent from 10.2 million in the previous month, according to Chinese customs data.

This comes despite Apple releasing the new iPhone 14 series in mid-September, while the decline is especially alarming amid an intensifying trend of manufacturers diversifying away from China to the likes of India and Vietnam, analysts said.

Foxconn epitomises China
Zhang Zhiwei

“Foxconn epitomises China,” said Zhang Zhiwei, chief economist at Pinpoint Asset Management.

Orders from the United States were the most affected, with the number of shipments from Henan dropping by over 1 million, or nearly a fifth month-on-month, to 4.37 million, which pushed the export value down by more than US$609 million, customs data showed.

In the first 10 months of the year, Henan’s exports totalled US$67.15 billion, half from nearly 60 million assembled smartphones – with more than 50 per cent bound for the US.

China had already confirmed its overall export growth turned negative for the first time in over two years in October after falling by 0.3 per cent compared with a year earlier, down from 5.7 per cent expansion in September.

The Zhengzhou plant, which is operated by Foxconn Technology Group and can employ up to 350,000 workers at its peak, is a major driver for the local economy and is representative of China’s export-oriented manufacturing industry, analysts said.

01:51

Violence erupts at world’s largest iPhone factory over benefits and Covid-19 controls

Violence erupts at world’s largest iPhone factory over benefits and Covid-19 controls
As the external demand will continue to decline next year, what can the policymakers do to mitigate more downside risks to exports, this is a big issue for next year
Zhang Zhiwei

Foxconn’s Zhengzhou branch, officially named Hong Fu Jin Precision Electronics (Zhengzhou), was the biggest exporter among all companies in China in 2019, according to the Statistical Society for Foreign Economic Relations and Trade of China.

“As the external demand will continue to decline next year, what can the policymakers do to mitigate more downside risks to exports, this is a big issue for next year,” Zhang added.

Recent production at the factory has been disrupted since an exodus of thousands of workers due to coronavirus outbreaks at the end of October, increasing pressure on local governments struggling to maintain normal industrial activities under Beijing’s zero-Covid policy.

“[Problems like this] are not going to be solved any time soon,” said Alicia Garcia-Herrero, chief economist for Asia-Pacific at Natixis.

In the process of reopening, the disruptions to manufacturing will get worse before they get better
Dan Wang

“So the plummeting of exports is going to continue, and for these companies, they need to find alternatives. It’s not going to be quick, because nothing is quick, but it’s going to be quicker than if there is no zero-Covid policy in China.

“So we will see massive investment in countries like Vietnam and India.”

The local government will also face increased fiscal pressure amid the disruptions, according to Dan Wang, chief economist at Hang Seng Bank (China), as the Foxconn plant is also the biggest taxpayer in Henan.

The direct impact on China’s economy might be negligible, but other suppliers to the Apple supply chain, especially in the upper stream or service providers, will also suffer from Foxconn’s slowdown as their liquidity will be affected, Wang added.

“In the process of reopening, the disruptions to manufacturing will get worse before they get better,” Wang said.

Beijing has vowed to stick with its zero-Covid strategy despite the supply chain disruptions, although it did announce a minor easing to the stringent guidelines earlier this month.
Local governments, though, have continued with strict control measures, including large scale lockdowns and mass testing, as infections jumped to a record high of 31,444 on Thursday, with Zhengzhou set to start a five-day lockdown of its urban districts on Friday.
Following the disruptions at the Zhengzhou plant, which included violent clashes between workers and security forces on Tuesday and Wednesday, Foxconn has said it will coordinate production with other plants.

Exports of assembled smartphones from Jiangsu province, home to other Foxconn factories, jumped by 31 per cent in value in October compared to September, customs data showed.

Foxconn is also reportedly planning to quadruple the workforce at its iPhone factory in India over the next two years.

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