The announcement that Apple will start the production of its iPhone 14 in India at the end of October accelerated rumors that the company was looking to move its production out of China.
Although it is not yet possible to cut off its dependence on the Asian giant, this first step could be considered a sign of what will come later.
The same will happen with the production of Google’s new Pixel 8 mobile phone, with the company choosing Vietnam for its production. This country already makes about 20-25% of Pixel 7 devices. However, with the Pixel 8 and Pixel 8 Pro, at least 50% of the devices will be made in Vietnam.
A study conducted in 2020 by UBS Evidence Lab found that 76% of U.S. companies with factories in China were in the process of or considering moving their operations to other countries.
Several companies have chosen to leave China, such as Samsung, LG, Kia Motor, Hyundai, Hasbro, etc. Others, like Dell or HP, plan to transfer part of their production.
Perhaps the biggest beneficiary of this technological exodus is Vietnam.
The NY Times “Foxconn reports, Apple’s largest contract manufacturer, recently signed a $300 million deal to expand into northern Vietnam with a new factory that will create 30,000 jobs.” The deal was added to the $1.5 billion invested previously by the company.
A break on ‘Made in China’
The reasons behind this decision are both political and economic.
The conflict between Taiwan and China resulted in growing tension between the regime and the United States, especially after the visit of the Speaker of the U.S. House of Representatives, Nancy Pelosi.
The military maneuvers in the China Sea, and the regular intimidating flights in the Taiwanese sky by the Red Army, prove that a military confrontation’s danger is a genuine concern. Foreign capital companies, especially American ones, would be seriously affected.
The cheap labor offered by China was a solid incentive to receive production and assembly plants from large foreign companies, along with low costs and good logistics in the supply and export system. But the price to pay is a greater dependence on Chinese inputs.
Over the years, wages in China have risen, prompting companies to look for more profitable alternatives, setting their sights on other lower-wage countries in Southeast Asia.
A good example is Foxconn, which works together with Apple. The salary at the company’s new factory in Vietnam is about $300, while in its Shenzhen, China, factory, it’s about $650.
With the arrival of the Covid pandemic and the restrictive measures applied by the Chinese regime, the supply chain and the free performance of workers were seriously affected.
In early September, Apple’s data center in Guiyang, China, was locked down by Zero-Covid measures, and Apple isolated employees inside the building and prohibited them from leaving.
In conjunction with its regime-backed partner, Guizhou Cloud Big Data, the Apple data center stores iCloud data, including emails, photos, and videos, for hundreds of millions of Chinese customers.
With the implementation of two new laws that control the privacy and data security, e-commerce businesses and those that work with user data online are directly affected.
LinkedIn and Yahoo closed their operations in the country at the end of 2021 due to the legal framework that imposed these laws.
These legal tools give the Chinese regime greater control power and can be used to increase surveillance and repression.
Another event involving Apple occurred in Shanghai in May this year. One of its factories was the scene of clashes between employees and guards who maintained the restrictions and lockdown due to the coronavirus.
As in Guiyang, Apple has tried to continue to operate through a “closed-loop” production system. Under this system, employees are not allowed to leave the premises and are forced to live and sleep in the factory or a nearby dormitory. They are also prohibited from seeing other people, including their family members. As a result, protests against the lockdown escalated into violence.
Change of direction
“From now on, we hope that trade relations will be fair and reciprocal.”
“For many years, China has pursued unfair industrial policies and trade practices, including dumping, discrimination, tariff barriers, forced technology transfer, overcapacity, and industrial subsidies, which defend Chinese companies and make it impossible for many American companies to compete on a level playing field.”
With this declaration, Trump began, in 2018, a process of purging trade relations between the two countries, focusing on the leveling of tariffs, protecting intellectual property, and preserving jobs.
It also launched a vigorous campaign with incentives for American companies on Chinese soil to return to the U.S., along with the rise in tariffs for products from China.
With the arrival of Biden to power, many of the measures applied by Trump are still in place.
China continues to offer significant advantages by providing a vast domestic market and production and export chain facilities. However, the cocktail of indiscriminate lockdowns, rising costs, restrictive laws, and rumors of war have companies seriously considering jumping ship before it sinks.