IT industry leaving China

IT industry leaving China

It was reported last week that in 2022, Apple’s smartphone exports from India reached $2.5 billion, which is twice the number reported in the previous year. According to Bloomberg’s sources, Foxconn Technology Group and Wistron Corp., which manufacture iPhones at their Indian plants, each shipped $1 billion of devices abroad. Pegatron Corp., another major contract manufacturer, exported $500 million of iPhones.

Given that the total amount of Apple’s smartphones manufactured had barely changed since the previous year, the data do not show a significant increase in exports from India but rather Apple’s desire to diversify supply chains as much as possible, reducing its dependency on China. 

Plants based in India and Vietnam are expected to become the main iPhone manufacturing alternatives to the Chinese ones. For instance, iPhones SE, 12 and 13 have already been made in India. They have been assembled at Foxconn Technology’s plant on the outskirts of Chennai. Last year, the iPhone 14 assembly started there as well. 

Tim Cook’s company announced its intention to partially move its MacBook production out of China back in 2020. In late 2022, it was reported that the American company was going to partially shift its AirPods and Beats headphones production from China to India. This year, Foxconn will be the one to assembly earphones and headphones in India. It will later be joined by Luxshare Precision Industry, which already assembles AirPods in Vietnam and China but is planning to establish an assembly process in India too, and its affiliates.

Moreover, the Reuters news agency has recently reported that another Apple supplier intends to partially move its production out of China. According to the news agency, Chinese display maker BOE Technology Group is in talks to rent land in Vietnam to build two factories. The company is ready to invest $400 million in the project. Not only do they supply screens to Apple, but they also have other giant clients, such as Samsung and LG. 

Samsung shifted part of its smartphone and personal computer production to Vietnam from China back in 2019−2020. Last summer, the company announced the relocation of its whole display production to the same country from China and South Korea. The South Korean company is the largest foreign investor in Vietnam. Last month, the Vietnamese government stated that the company was willing to increase its investment in the country from $18 billion to $20 billion: the Korean manufacturer decided to expand its plant in the province of Bac Ninh.

The tendency for companies to gradually leave China can easily be backed up with data. Eight years ago, Samsung had had approximately 60 thousand employees working in China. By the summer of last year, the number had been reduced to 10 thousand. Meanwhile, the number of employees working in South Korea has increased by 20 % over the past five years.

Just like Samsung, another South Korean electronics manufacturer, LG, which is investing $4 billion in smartphonecamera production, has decided to shift its production to Vietnam from China. LG has previously shut down some of its plants in China, such as those in Tianjin and Kunshan, and shifted its production of U.S.-bound refrigerators to South Korea from the province of Zhejiang.

Taiwanese electronics manufacturers are fleeing China as well. And it’s not just about Foxconn, Wistron and Pegatron, which make equipment not only for Apple but also for other companies, such as Dell, Sony, Tesla, and Volkswagen. Asus is also steadily shifting its production away from China in favor of U.S.- and Vietnam-based plants. Other personal computer manufacturers, HP and Dell, announced their plans to move their production out of China, too, back in 2019. It was then that HP told Nikkei that it was planning to relocate 30 % of its notebook production to Taiwan and Thailand from China. Dell, on the other hand, considered Taiwan, Vietnam, and the Philippines as laptop production alternatives to China.

Microsoft is now shipping Xbox game consoles from Ho Chi Minh, Vietnam, rather than China. Amazon is shipping Fire TV devices from India and has recently shut down its Kindle eBook production in China. Google will now assemble its newest Pixel smartphones in Vietnam rather than at Foxconn facilities in China.

There are several reasons for this mass exodus of tech companies. The first one is the COVID-19 pandemic. It was the pandemic that caused many Chinese manufacturing facilities to shut down as part of quarantine efforts, basically leaving global electronics, home appliances and electric vehicle companies without newly manufactured products. 

China has long been the key manufacturing powerhouse for dozens of global brands. For example, approximately 90 % of Apple’s iPhone, iPad and MacBook products used to be manufactured in China. Last spring, the number was still relevant. However, in 2020, many companies learned the hard way that they needed to think of supply chain diversification.

The second reason is a political one. The China – U.S. trade war, which began during the presidency of Donald Trump, has resulted in increased import tariffs on both sides, restrictions on U.S. technology exports, and heightened pressure put by the Chinese authorities on foreign businesses. That said, given the positions of China and the U.S. in the global economy, it is clear that the trade war has a certain impact not only on Chinese and American companies. 

The third reason is an economic one. In 2022, China’s GDP grew by 3 %, the country’s economy slumping to one of its worst levels in the last 40 years. By contrast, in 2021 GDP grew by 8.4 %. What led to such a sharp slowdown was the same old COVID-19 pandemic coupled with the zero-COVID policy, which made all major Chinese cities spend most of last year under strict lockdowns. The Chinese authorities had been refusing to loosen coronavirus restrictions until they resulted in mass protests. Late last year it was decided to simultaneously lift almost all restrictions. This decision hasn’t had much effect on the economy yet, as opposed to spiking morbidity and mortality rates.

“A weakening economy. COVID-related lockdowns. Reciprocal trade sanctions. Possible conflict over Taiwan. There are many reasons for companies to curb China operations,” believes Derek Scissors, senior fellow at the American Enterprise Institute. Therefore, news about major companies saying goodbye to China won’t stop coming out in the foreseeable future.