iPhone Factory Lockdown Exposes Risk to China’s Reliance, Analysts Say
The closure of Foxconn’s Zhengzhou plant, the world’s biggest maker of iPhones, has highlighted some of the risks of relying on China’s zero-Covid manufacturing sector, analysts told AFP.
Foxconn, which is Apple’s main contractor, has seen an increase in Covid-19 cases at its Zhengzhou site, which has led the company to close a large complex in order to prevent the virus.
Then there were pictures of panicked workers fleeing the area on foot following allegations that the situation is not good at the facility that employs hundreds of thousands of workers.
Foxconn is China’s largest private sector employer, with more than a million people working across the country in its nearly thirty factories and research centers.
But Zhengzhou is Taiwan’s crown jewel, churning out iPhones in abundance that can’t be seen anywhere else.
“Under normal circumstances, almost all iPhone production takes place in Zhengzhou,” said Ivan Lam, an analyst at analyst firm Counterpoint.
The danger of ‘strong dependence’
Apple manufactures more than 90 percent of its products in China, which is one of its most important markets.
“For Apple, it is also a bad example in terms of the stability of production chains,” Alicia Garcia Herrero, Asia-Pacific manager of Natixis bank, told AFP.
Experts say the company’s heavy reliance on China “brings potential risks, especially when the US-China trade war shows no signs of abating,” according to Dezan Shira & Associates, a consulting firm.
Opened in 2010, the Zhengzhou factory employs up to 300,000 people who live on site year-round — creating a technology hub known as “iPhone city”.
It is made up of three factories, one of which produces the iPhone 14 – Apple’s new handset model.
Apple did not respond to AFP’s request for comment on how the shutdown would affect its production.
Analyst Lam estimated that the work stoppage at the site resulted in a loss of “10 to 30 percent” of production, but said that part of the production was also temporarily moved to other Foxconn sites in China.
According to Foxconn, the site currently uses a “closed loop” where workers avoid all contact with the outside world, while their daily bonuses are quadrupled.
“This incident may have a limited impact,” on the production of the iPhone worldwide, estimated analyst Ming-Chi Kuo, who works with Apple products.
“But suppliers in China must learn to improve the efficiency of closed-loop production in response to the zero-Covid policy,” he added.
China is the last major economy to commit to a zero-Covid strategy, which continues with snap lockdowns, mass testing and long-term quarantines in an effort to stem the outbreak.
But the new variant has tested the ability of local officials to put out fires faster than they can spread, causing much of the country to live under an ever-changing mosaic of Covid curbs.
Apple has already begun to outsource part of its production to India and is looking to Vietnam in an effort to free itself from Chinese manufacturing – a practice that accelerates Covid.
But that’s not so easy – last year, about 7.5 million iPhones were made in India, just three percent of Apple’s total production.
Increasing industrial capacity (in India) is difficult,” Lam said.