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Text | Benyuan Finance

Reconcile?

Foxconn invested 1 billion yuan to increase its investment in Henan, China, making a 180-degree turnaround.

"I hope Foxconn will remain confident in investing in Henan." On July 22, the Henan Provincial Government and Foxconn signed a strategic cooperation agreement in Zhengzhou, confirming the rumor and causing excitement in the market.

Foxconn suddenly turned around, Henan suddenly spoke out, and the two parties reconciled. The timing was delicate.

01Foxconn turns back

On the Internet, the news that "Foxconn returns to Zhengzhou, invests an additional 1 billion yuan to build a headquarters building, and transfers part of its production capacity from India back to the mainland" is overwhelming, making people excited.

Everyone even imagined a cool blockbuster film in their minds: Foxconn was going to bring Apple back with it, and "Apple can't do without us."

Why did Foxconn, which withdrew from the mainland, come back?

Is the yield rate of Apple's smartphones in India too low? Is India's supply chain too poor? BYD and Luxshare Precision are competing for orders, and Foxconn is in danger? None of them.

1. It is reported that the yield rate of iPhones produced in India is only 50%, and there is still a problem of excessive E. coli, so the price of iPhone 15 has been greatly reduced. So Foxconn is coming back.

In fact, most media have overlooked an important piece of news: this year the proportion of Apple 16/promax produced in India has increased significantly, and the company has also specifically given the orders for the production of mobile phone batteries to India.

The so-called low yield rate comes from an old news in the Financial Times. It is not that Apple's yield rate is 50%, but that the yield rate of parts is low. The price reduction of iPhone15 is also due to the lack of obvious iteration of the product itself and multiple factors such as consumption downgrade, which has little to do with where it is produced.

2. From a cost perspective, an industry like Apple's OEM, which is low in technology and labor-intensive, will inevitably be transferred to places with lower costs. There is no need for conspiracy theories.

According to Caixin magazine, in 2023, the labor cost of an ordinary worker in an Apple supply chain company will be 6,000 to 6,500 yuan in the Pearl River Delta of China, 3,200 to 3,600 yuan in Vietnam, while the monthly salary of Indian workers is only about 1,500 yuan.

Transfer to Vietnam, India and even other countries is expected, and even the return flow can only be short-term.

3. From a political perspective, Apple is an American company and has to consider its stance. It does not dare to place most of its production in China.

No matter which leader comes to power in the future, it will be too risky to put all the "eggs" in the Chinese basket. The anti-dumping investigation on three-wheeled vehicles some time ago is an example.

Of course, Apple will not completely offend China. While moving its supply chain to India in the past two years, it also transferred some orders originally given to Foxconn to purely Chinese companies such as Luxshare Precision and BYD, as a little compensation.

What really made Foxconn decide to return and bet on the mainland's next decade is actually mainland China's high-end manufacturing industry.

Foxconn’s top priority: to develop new energy vehicles and battery industries.

02Betting on car manufacturing

Guo Taiming, the former head of Foxconn, said: "The Apple Car is just an iPhone on four wheels. Since we can make iPhones, why can't we make electric cars?"

When it comes to making cars, Foxconn is a veteran who has fought and failed many times but keeps fighting.

As early as around 2013, Foxconn was a parts supplier for automakers such as BMW, Tesla, and Mercedes-Benz, and later invested in CATL to enter the power battery field.

Foxconn has incubated Byton and Aiways, and has also cooperated with many automakers such as Fiat, Xiaopeng, Geely, and Yulon. It even spent 4.7 billion to acquire Lordstown Motors, a new American car-making force.

In addition, Foxconn has also created the pure electric vehicle brand Foxtron, released three new cars, and developed its own pure electric platform MIH.

However, these projects either failed to materialize or aborted, and never made much of a splash.

Foxconn chose to build a production base in Zhengzhou, most likely for OEM car manufacturing.

However, Foxconn's main business has always been processing for mobile terminals. Its investment and accumulation in key areas of new energy vehicles such as autonomous driving and intelligent networking are relatively small. Compared with major domestic vehicle manufacturers, its foundation is even more pitifully shallow. It is very difficult for it to become the leader of automobile OEM companies.

It is foreseeable that Foxconn’s road to car manufacturing in the future will be like a bloody knife, full of thorns.

03Running to each other

Back to the question at the beginning, why did Foxconn choose Zhengzhou?

The answer is that under the current circumstances, Foxconn cannot do without Henan, and Henan cannot do without Foxconn.

Foxconn is so big that it is hard to find new people as it is to find old ones. Zhengzhou has long been Foxconn's largest manufacturing base. Zhengzhou is located in the Central Plains and is well connected. With the airport, logistics can reach the world, which is an obvious advantage.

More importantly, Zhengzhou is backed by Henan, which currently has more than ten well-known companies such as SAIC Zhengzhou, Dongfeng Nissan, Zhengzhou Yutong, and Kaifeng Chery, and its automobile industry chain is relatively mature.

Other relevant data show that Zhengzhou's new energy vehicle production will reach 316,000 units in 2023, a significant year-on-year increase, and will be among the top 10 cities in new energy vehicle production. BYD, Yutong, FAW and many other new energy vehicle projects have also settled in Zhengzhou, and the goal of building the "first city of new energy vehicles" has been set, presenting a vibrant scene.

On the other hand, Foxconn's "de-mainlandization" has failed except for its relatively successful factories in Vietnam, while its factories in the United States and India have all failed. It needs Henan and Zhengzhou.

Mainland China's attitude towards Foxconn has also changed.

Once upon a time, due to discriminatory prejudice against foreign capital and foreign companies, Foxconn and Terry Gou were not well-liked by netizens.

So when Foxconn moved its production line, it was criticized as "the farmer and the snake", and low-end industries were told to get out of Henan and China. However, they ignored how difficult it is to successfully cultivate an industry.

Lu Feng, an economics professor at Peking University, once said, "Don't divide industries into different levels." The idea of ​​only pursuing a small number of "high-tech" industries and leaving aside the traditional industrial system that accounts for the largest proportion of China's economy is wrong (traditional industries account for about 80% of the entire industrial system).

In order to attract a giant company like Foxconn, Henan Province has mobilized the entire province to tailor a series of preferential measures for Foxconn in terms of land, taxation, etc. Some experts estimate that the investment attraction costs corresponding to these preferential measures are as high as 12 billion to 15 billion yuan.

The establishment of Foxconn has also brought in upstream and downstream companies to follow up, continuously expanding local production lines, becoming an important economic pillar of Henan, and driving the growth of local economic industries and exports.

As of May 2024, Foxconn has provided more than 3.5 million jobs in Henan. In other words, no matter how bad Foxconn is, at least it provides a job opportunity for Henan people who are displaced and working outside the province.

Due to Foxconn's industrial adjustments, in the first half of this year, the cumulative import and export of foreign-invested enterprises in Henan decreased by 66.9% year-on-year, and exports decreased by 88.3%. Many small businesses in the surrounding area that relied on Foxconn went bankrupt.

Industrial transformation, economic pain, and declining employment rates mean that China still has a large number of ordinary people who need jobs and a large number of low-income families who need to be nurtured. Compared with some sweatshops, Foxconn pays wages on time and pays overtime in strict accordance with the labor law. It is actually considered a conscientious factory. This is the naked economic reality.

Guo Taiming's earlier "reward" actually failed to see the biased statement that "dependence is two-way". On the other hand, it also shows that Henan, a major agricultural province, is still quite pragmatic.

Let's put aside our prejudices, respect and tolerate each other, pursue mutual benefit, and welcome with open arms any enterprise that can bring benefits to the Chinese economy.

|References:

[1] “Foxconn adds 1 billion to its investment in mainland China. Is it because India is strangling it?” Guancha.com

[2] “Foxconn builds cars, is it a bloody battle?” AiMaiChe

[3] “Henan is anxious and shouts out to Foxconn, which is very meaningful”