I have no particular knowledge about the internal workings of the Chinese government so I can only offer some fairly vague observations here, but it’s totally fascinating to me to watch Xi Jinping be willing to destroy everything China has built to become a global economic power in order to not only take total control of the entire nation in a way not see since Mao but also in favor of the ridiculous Zero Covid policy that is combined with an unwillingness to use the foreign vaccines. To me this is just insane on any number of levels. We’ve watched what is happening with China for a few years now and the recent stories about growing grassroots resistance in China to the Zero Covid policy demonstrate just how untenable this really is. It would be one thing if the Chinese had either developed a first rate vaccine or was willing to use American vaccines, but that would get in the way of the story the Chinese Communist Party wants to tell itself, so it’s nope on the latter and a failure on the former. It’s ridiculous in November 2022 to be following a Zero Covid policy anyway. It’s not only not necessary but it’s outright stupid.
But this leads to a bigger issue that I do know a lot about–American corporate behavior and the global economy. In other words, why would American companies continue to invest heavily in a nation where supply chains could be interrupted at any moment due to a policy no other nation follows? This story on the Foxconn factory in China that makes the iPhone is a great way to get at this.
Taiwan’s Foxconn, Apple’s main manufacturing partner, operates iPhone City independently. It has acknowledged that it has made mistakes in managing the employees, while blaming local officials for unpredictable policies that made meal delivery and maintenance almost impossible, according to a person familiar with the company who asked not to be named discussing private matters. Local government authorities and representatives for Foxconn didn’t respond to requests for comment.
Foxconn’s troubles have drawn the most attention because of the company’s prominence and size. But its struggles suggest that others may be having even more trouble operating within the parameters of China’s policies. “You see cases like Foxconn, and every company is now asking themselves, ‘Will that happen to me?’” says Alicia Garcia Herrero, chief Asia Pacific economist at Natixis. “Any company that depends on manufacturing has to consider alternatives. It will be costly, but it will be less costly than only relying on China and then China doesn’t open up.”
Herrero says China’s economy could still take a year to 18 months to open up, and that it’s vital that the country’s government communicate clearly that it has a plan to recover. In her view, China’s description of its plans so far have been muddled, running the risk that businesses will lose confidence and accelerate plans to develop manufacturing capabilities elsewhere. “Beijing can’t take for granted that companies will keep their manufacturing in the country,” she says.
The Zhengzhou plant produces about 80% of the latest iPhone 14 models, making its continued operation critical for Apple, which warned this month that shipments of its newest iPhones will be lower than expected going into the peak holiday season. In a worst-case scenario, Morgan Stanley said, it’s possible no more iPhones will be shipped from the site this year.A spokesperson for Apple said in a statement that the company had staff members at Zhengzhou facility and was “reviewing the situation and working closely with Foxconn to ensure that their employees’ concerns are addressed.”
Tim Cook, who championed the development of Apple’s China supply chain before he took over as chief executive officer from Steve Jobs in 2011, is developing alternatives. Assembly partners such as Foxconn are making more iPhone 14 models in India than any previous generation and are beginning to use the country as an export base. Foxconn is also expanding in Vietnam and Thailand. That’s a sign of how Chinese President Xi Jinping’s Covid policies are threatening China’s economic growth.
This is certainly what I would do if I ran Apple. Operating in China has had its advantages of American companies, no question. China has what all corporations want–dictatorship and low wages. But you can find some combination of those two things in lots of countries. What I don’t understand is how Xi doesn’t see what this is going to do his nation’s economy? Is it too much hubris? Does he just not care? Would he rather have the foreign companies gone to make it easier for him to consolidate power? Again, I don’t know enough about the internal workings of China to have any meaningful understanding of what he is thinking, but this is a disastrous set of policies.