Why America may prove a cheaper option than China for Foxconn

Eight months ago, Terry Gou, the chairman of Taiwanese electronics processing giant Foxconn, was attending a deal-signing ceremony in the Chinese city of Guangzhou and pledging to invest US$8.8 billion for a new LCD plant there. At the time Gou told the South China Morning Post that he was impressed by the Guangzhou government’s efficiency and “the US government needs to see it”. The Guangzhou deal by Gou, whose business entered the mainland in 1988 and now employs more than a million workers across the country, was hailed by China’s government-backed media as a proof that China is still the world’s best place for manufacturers, especially hi-tech ones. Warning for China as electronics giant Foxconn plugs into US incentives It was a shot in the arm for the world’s second biggest economy when rising costs and excessive state intervention are turning global investors away. Eight months later, Gou made headlines again with a ceremony in the White House, at which Gou and US President Donald Trump announced that Foxconn, the assembler of iPhone and iPads and other gadgets, would build a new LCD display panel factory in Wisconsin. The two planned factories, in many ways, are similar. The US one has a total investment of US$10 billion versus Guangzhou project’s US$8.8 billion, the US plant will employ 13,000 workers when fully operational while the Guangzhou factory is expected to employ up to 15,000. The US plant is scheduled to open in 2020, a year after its counterpart in Guangzhou. Both plants will produce LCD screens that can be used for televisions, mobile phones and other smart devices. Foxconn bets big on US expansion, Trump and unfettered demand for hi-tech devices The state of Wisconsin will award US$3 billion in incentives to Foxconn if the Asian giant can deliver its promises in investment and job creation. The municipal government of Guangzhou did not release its terms for Foxconn’s project in the city, but it is a common practice for local authorities to provide preferential land and tax treatments. According to a statement from the land bureau in February, Guangzhou has sold a plot of land covering 1.26 million square metres to a mainland subsidiary of Foxconn for 989 million yuan – a price that was only a fraction, or about 5 per cent, of the price charged to other developers. Foxconn to build US$10 bn plant in Wisconsin The land bureau said the bidder must be an electronics company that is able to generate 80 billion yuan (US$11.8 billion) from that specific plot of land – terms tailored for Foxconn. While China officially charges a 25 per cent corporate income tax rate and a 17 per cent value-added tax for processing businesses, analysts expect the Foxconn plant in Guangzhou to receive preferential rates, tax holidays and even tax rebates. Neither the Chinese government nor Foxconn have provided details of the tax arrangements. For workers at the Wisconsin plant, Foxconn is expected to pay nearly US$54,000 per worker every year. That salary level is about six or seven times the rate a worker in a Chinese Foxconn factory can get. Foxconn announces plans for new $8.8bn television flat-panel factory in Guangzhou However, as Foxconn is required by Chinese law to contribute to pension and other state welfare programmes, the actual hiring costs of Foxconn in China are higher than the wage level suggests. In addition, China’s wage level is rising at a rate much faster than blue-collar wages in the US. In Guangzhou, the government minimum wage is now 1,895 yuan a month (US$281), up from 780 yuan a decade earlier. “The US could be possibly a cheaper and better place for Foxconn’s display screen factory” if other costs, including taxes, electricity and logistics charges, are considered, said Liu Kaiming, head of the Institute of Contemporary Observation in Shenzhen. “China has no obvious advantage in overall cost any more as Chinese enterprises have heavier operational costs than their peers in the US ,” Liu said – especially in high-end manufacturing when labour only accounts for a small portion of the overall cost. “The global manufacturing trend is changing again,” said Liu. How an American city is cashing in on China’s ‘made in USA’ desire Foxconn’s Guangzhou plant is apparently aimed at China, the world’s second biggest economy with 1.3 billion people, and the Wisconsin plant is for the US, the world’s biggest market for display products and the world’s number one economy, said Yan Zhanmeng, a Beijing-based director at the technology research firm Counterpoint Research. “The two factories have no direct competition but the two huge investments both aim at balancing and favouring the Chinese and American governments,” Yan said. “The only question for Foxconn is where to build to maximise its benefits,” he said. US and China talks in Washington end in deadlock as threat of trade war rises It is believed that the new factory in Guangzhou is designed for the mainland market while the one in Wisconsin is for the US and overseas market, Yan added, arguing that the Wisconsin deal showed that Foxconn was trying to please Washington. The Trump administration has been trying to bring manufacturing jobs back to America, and Trump hailed Foxconn’s decision as a victory for the policy. “This is a great day for American workers and manufacturing – and for everyone who believes in Made in the USA,” Trump said at the ceremony on Wednesday. “Foxconn joins a growing list of industry leaders that understand that America’s capabilities are limitless, that America’s workers are unmatched, and that America’s most prosperous days are just ahead.” The Chinese government has started to worry about the stagnation of foreign investment inflows. Beijing has put “stabilising investments by private sector and foreign investors” as a top priority in economic policy, a significant policy statement that could lead to the red carpet treatment and favours for foreign investors again. Open up your markets if you want more business in US, China told While China was a big winner in the last round of global manufacturing redistribution in 1990s and even the first decade of the century, the wind is starting to turn against China’s. In addition to competition from low-cost countries in places such as Southeast Asian or Africa, a growing number of manufacturing businesses in China have also started to tiptoe into America. China’s ‘glass king’ shatters manufacturing wisdom with move to the US Cao Dewang, China’s leading glass manufacturer, triggered a heated debate in the country after he publicly complained about high taxes and excessive levies on businesses. Foxconn said it needs to be in China, defined as a “traditional market”, as well as in the US to serve its customers. “Our continued investment in our traditional markets such as China and our expansion globally in markets that include the United States is critical to our ability to meet global customer requirements,” the company said in a statement when asked to comment on the differences between the two plants.

Why America may prove a cheaper option than China for Foxconn

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Despite urging the US government to copy Guangzhou, the iPhone manufacturer’s Wisconsin plant could prove more cost effective in the long run

Despite urging the US government to copy Guangzhou, the iPhone manufacturer’s Wisconsin plant could prove more cost effective in the long run