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Recently, a rumor-debunking and a piece of news about enrollment expansion are worthy of attention.

When the news that "HP will move half of its personal computer business out of China" came out, HP immediately refuted the rumor, saying that "China is an indispensable and key link in HP's global supply chain."

Foxconn, which once made headlines for withdrawing from mainland China, has recently resumed its relationship with Zhengzhou: not only did it invest 1 billion yuan to build its headquarters building, it also recruited workers on a large scale with high salaries.

Alas, isn’t it said that “foreign capital is fleeing China”? What’s going on with HP and Foxconn?

01

From a historical perspective, industrial transfer is a universal law of manufacturing development.

Whether it is Britain after the Industrial Revolution, the United States after World War I, Japan after World War II, or the "Four Asian Tigers", the economic rise of these countries and regions all benefited from developed import and export routes and low production costs.

Especially after World War II, industrial transfer accelerated due to globalization. Following market rules, industries moved to countries and regions with lower production costs, gradually forming a global industrial chain structure with R&D and design in developed countries, assembly and production in developing countries, and consumption returning to developed countries.

In the early days of reform and opening up, China took advantage of its cheap labor force to widely accept industrial chains from developed economies and vigorously developed its own manufacturing industry. Decades later, China has now become the only country in the world that has all the industrial categories in the United Nations industrial classification.

Now, with the overall improvement of China's industrial manufacturing level, labor costs have risen, and the profits of multinational manufacturing companies have been diluted. At this time, the advantages of cheap labor in Southeast Asia, India and other countries and regions have become prominent. According to market laws, industrial transfer is bound to happen again.

What is different from the past is that this industrial transfer is mixed with the background of Sino-US game and the changes of the century. The adjustment of the global industrial chain layout of enterprises has also been given more ideological color. There are rational considerations of enterprises, but also many of them are forced.

02

During the interview, the reporter met several Chinese business leaders who have set up factories in Southeast Asia. They admitted that the main reason for setting up factories abroad was that their products exported from Southeast Asia to Europe and the United States could enjoy tariff reductions and exemptions, and avoid the high tariffs imposed by some countries on Chinese goods.

Large multinational corporations will face greater geopolitical pressure.

According to media reports, last month, a Foxconn manager in Zhengzhou was transferred to Bangalore, India, and will work in India for several months before returning to Zhengzhou.

According to him, Foxconn Zhengzhou factory still has a huge order volume this year. However, unlike previous years, due to geopolitical considerations, the Indian factory may take over part of the production capacity this year. "The headquarters is comparing the production costs, production capacity stability, import and export trade risks and other conditions on both sides. Internal rumors say that the headquarters' idea is not to put all eggs in one basket."

For enterprises, transferring part of the entire industrial chain originally deployed in China to foreign countries is a rational choice to avoid risks. However, the cross-border transfer of such industrial chains is not smooth sailing and may even create new risks.

A leading agricultural machinery manufacturing company in Chongqing moved its factory to Vietnam, and a parts manufacturing company in the industrial chain also moved into Vietnam. The head of the company said that he realized the complexity of the situation after he went there. First, Vietnamese workers generally have a low level of education and are far less efficient than Chinese workers. Second, the energy supply problem is prominent. The company has suffered sudden power outages more than once this year. Overall, the cost has not been reduced much.

A clothing manufacturer with factories in Southeast Asia also revealed that local workers are good at sewing T-shirts and sweaters, but if they want to do more complicated processes, it will take a long time for the workers to master them.

Southeast Asia has a dense population, but its workers are poorly educated and its infrastructure is poor, which limits the scope of the Chinese industrial chain it can undertake. This is also the reason why there are so many assembly plants in Southeast Asia.

The situation in India, the world's most populous country, may be even worse. Apart from its population, India has no advantages in infrastructure, business environment and other fields. In recent years, it has become known around the world as a "graveyard for foreign investment".

In the past two years, Foxconn accelerated the transfer of a large amount of production capacity from China to India. Unexpectedly, the technical and technological level of Indian workers could not catch up with that of Chinese workers. The yield rate of Apple mobile phones assembled locally was low, and even the E. coli exceeded the standard! Not to mention the old problems such as power shortage and rampant corruption.

This time, Apple wants to make a comeback in the Chinese market with the iPhone 16 (in the first quarter of this year, Apple's market share ranking in China dropped from first to fifth), and the pressure is on Foxconn. After careful consideration, Foxconn decided that it would be more reliable to return to Zhengzhou for production.

There is also a set of data that shows that China, the "world factory", is difficult to be replaced -

Studies have shown that from 2017 to 2022, as the market share of Chinese products in the United States dropped by 5 percentage points, the unit price of US imports from Vietnam and Mexico increased by 9.8% and 3.2% respectively. Why? Chinese products have gone through Vietnam and Mexico to enter the US market, and the cost has increased. It is still American consumers who pay for this.

It can be seen that there is currently no country or region in the world that can completely replace China in terms of both cost and scale.

03

In recent years, China's manufacturing enterprises are accelerating their "digitalization" transformation, and the relocation of traditional labor-intensive industries is more like a "favor" to neighboring countries. After industrial adjustments, many industries that remain in China are no longer what they used to be, and foreign investment in China's industries is also constantly upgrading.

Ernest Nicholas, HP's global chief supply chain officer, revealed that HP has done two new things in Chongqing: one is to open the HP PC R&D Center, which is committed to promoting innovation in Chongqing's computer manufacturing industry; the other is to cooperate with Chongqing University to open a joint innovation laboratory for artificial intelligence applications to assist in digital transformation and intelligent manufacturing.

Foxconn also announced that the new headquarters in Zhengzhou will provide industrial resources and technical support for Foxconn's three core areas of smart manufacturing, digital economy, and green development, as well as three emerging areas of electric vehicles, health care, and robotics technology.

At this year's offline promotion meeting of the CIIE in Chongqing, a relevant person in charge of Johnson Controls of the United States said that they plan to establish a new technology research and development center in China.

Placing R&D centers in China to promote industrial chain upgrading is becoming a new trend for many multinational companies investing in China.

Although many multinational companies claim to have a "China + N" strategy, that is, gradually distributing the production links originally concentrated in China to multiple countries to avoid risks, China's increasingly powerful scientific and technological strength, good business environment, and huge market of more than 1.4 billion people are "unique" in the world. Even if it is "China + N", China will firmly occupy the center.

In the final analysis, neither the relocation of labor-intensive industries nor the return of multinational companies is sufficient to support the so-called "hollowing out of Chinese industries" and "foreign capital withdrawing from China." The latter two are more of a rhetoric of the international public opinion war, and we cannot follow suit and sing pessimistic praises.

The latest data released by the Ministry of Commerce show that although the actual use of foreign capital in my country in the first half of the year decreased year-on-year, 27,000 new foreign-invested enterprises were established, a year-on-year increase of 14.2%; the proportion of foreign capital used in high-tech manufacturing increased by 2.4 percentage points year-on-year; the actual use of foreign capital in medical equipment and instrument manufacturing, and professional technical services increased by 87.5% and 43.4% respectively; Germany and Singapore's actual investment in China increased by 18.1% and 10.5%.

It is obvious that foreign capital is not "simply leaving" but is adjusting its structure. The industrial chain transfer taking place in China is more like an industrial chain upgrade.

Source: China Economic Weekly WeChat Official Account