China calls on manufacturers to stay resilient after Foxconn mishap

China’s growing concerns about the resilience of its supply chains and its role in global manufacturing have become more pronounced, as US consumer electronics giant Apple accelerates its move to diversify production away from the country amid Covid-19 disruptions and geopolitical tensions.

In an opinion piece published in the People’s Daily on Tuesday, China’s Minister of Commerce Wang Wentao wrote that the global supply chain has become fragmented because of the pandemic and Russia’s war in Ukraine, and that a number of countries are trying to “politicise and weaponise” the world economy to push for a decoupling.

Chinese companies must therefore strive to become adept in high-value-added production to stay resilient amid disruptions, Wang said.

While Wang’s article did not directly mention Apple or any Chinese companies, his call comes as China faces the risk of losing its central role in global supply chains due to the impact of Beijing’s three-year zero-Covid policy, which was only relaxed earlier this month.

In a key example of the damage caused by China’s strict pandemic controls, the world’s largest iPhone factory, run by Foxconn Technology Group in the central Chinese city of Zhengzhou, has been struggling to keep up with production targets since late October after it was hit by an exodus of workers who fled over fears of coronavirus transmission, followed by violent protests over staff allowances.

The troubles in Zhengzhou have led Taipei-headquartered Foxconn to shift part of its iPhone production to other assembly sites in China, as well as Apple to reconsider its heavy reliance on Chinese suppliers, according to market research firm Counterpoint.

Foxconn is planning to move 10 to 30 per cent of its capacity from China to countries including India, Vietnam and Brazil, according to Counterpoint analysts Bai Shenghao and Ivan Lam, while its rival Pegatron has also been investing in relatively advanced manufacturing and personnel training in India.

“The global manufacturing industry chain is steadily shifting outside China to avoid the risk of relying on a single manufacturing base,” Bai and Lam wrote in a post on Monday.

Meanwhile some Chinese manufacturers, drawn by favourable local policies such as tax relief, have also built factories in India and Southeast Asia, including original design manufacturers Wingtech Technology and Shanghai Huaqin Communications Technology.

While the move away from China could undermine the nation’s role as the world’s factory and hurt its economic competitiveness, some experts believe the process will be slow.

A China-centric electronics supply chain is the result of multiple factors, including the country’s vast market size, favourable policies, cost efficiency, steady supply of skilled workers, and an all-round industry chain that together have given China an unparalleled advantage.

Over 1 billion smartphones were made in China last year, representing 70 to 80 per cent of the global supply, while India and Vietnam made up the remaining 20 per cent, according to a recent research note by Chinese investment bank Citic Securities.

“China’s consumer electronics industry has developed for over four decades, the market is huge and the edge is still there,” Citic analysts wrote.

“We believe that the majority of the production chain is not economically primed for a relocation,” they said, adding that inferior infrastructure and an insufficient supply of skilled workers are also hindering other countries’ ambitions to replace China in manufacturing.

Instead, Chinese companies are expected In the next five to 10 years to move up the supply chain ladder to focus more on advanced manufacturing domestically, while shifting low-value production overseas, Citic analysts said. South China Morning Post