iPhone factory lockdown shows China dependency risks, analysts say

iPhone factory lockdown shows China dependency risks, analysts say

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Beijing (AFP) – The lockdown at the Foxconn factory in Zhengzhou, the world’s largest iPhone producer, has highlighted some of the risks of relying on China’s zero Covid manufacturing sector, analysts told AFP.

Foxconn, Apple’s main contractor, has seen an increase in Covid-19 cases at its Zhengzhou site, leading the company to lock down the sprawling complex in a bid to control the virus.

Footage then emerged of panicked workers fleeing the site on foot following allegations of poor conditions at the plant, which employs hundreds of thousands of workers.

Foxconn is China’s largest private sector employer, with more than a million people working across the country at its 30 factories and research institutes.

But Zhengzhou is the crown jewel of the Taiwanese giant, producing iPhones in quantities never seen anywhere else.

“In a normal situation, almost all iPhone production takes place in Zhengzhou,” said Ivan Lam, an analyst at specialist firm Counterpoint.

Risk of “high dependency”

Apple manufactures over 90% of its products in China, which is also one of its most important markets.

“For Apple, this is once again a bad example in terms of production chain stability,” Alicia Garcia Herrero, Asia-Pacific manager at Natixis bank, told AFP.

Experts say the company’s heavy reliance on China “brings potential risks, especially when the U.S.-China trade war shows no signs of de-escalating,” according to Dezan Shira & Associates, a firm of advice.

Opened in 2010, the Zhengzhou factory employs up to 300,000 people who live on site year-round, creating a sprawling technology hub known as “iPhone city”.

It is made up of three factories, one of which produces the iPhone 14, Apple’s latest handset model.

Apple did not respond to AFP’s request for comment on exactly how the lockdown will affect its production.

Analyst Lam estimates that the partial stoppage of work at the site resulted in a loss of “10 to 30%” of production, but said some production has also been temporarily moved to other sites Foxconn in China.

According to Foxconn, the site is currently operating in a “closed loop”, with workers avoiding contact with the outside world, while their daily bonuses have been quadrupled.

“This incident could have a limited impact” on global iPhone production, said analyst Ming-Chi Kuo, who specializes in Apple products.

“But suppliers in China need to learn how to improve closed-loop production efficiency in response to the zero-Covid policy,” he added.

Look elsewhere

China is the latest major economy committed to a zero Covid strategy, persisting with instant lockdowns, mass testing and lengthy quarantines in a bid to eradicate emerging epidemics.

But new variants have tested local authorities’ ability to quell outbreaks faster than they can spread, leaving much of the country living under an ever-changing patchwork of Covid curbs.

Apple has already started outsourcing some of its production to India and is eyeing Vietnam in a bid to wean itself off Chinese manufacturing – a trend accelerated by Covid.

But it’s not that simple: last year, nearly 7.5 million iPhones were made in India, just 3% of Apple’s total production.

“Increasing factory capacity (in India) is difficult,” Lam said.

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