Foxconn’s newest China factory faces uncertainty as US trade war and economic slowdown take a toll

When ground was broken in March 2017 for a new US$9 billion factory owned by a subsidiary of Foxconn Group, the event was witnessed by then Guangdong party secretary Hu Chunhua and Terry Gou Tai-ming, the Taiwanese billionaire who created Foxconn, the world’s largest assembler of Apple’s iPhones and tablets.

The plant was hailed by local media as an example of Chinese efficiency in promoting investments that matter for the future and the country’s key role in the global value chain.

The Southern Daily, an official Guangdong newspaper, reported that the project would be Guangzhou’s contribution to the “Made in China 2025” strategy and would help the city, and the province, move up the value chain.

Now, after two years of construction in the Guangzhou suburb, the plant’s main structure is completed, and on a recent visit trucks were seen going in and out of a gated compound.

Workers at the site said production lines were being shipped in and installed so the factory could start producing liquefied crystal displays with 8K resolution, which makes screens clearer.

This enthusiasm has given way to unease amid rumours that the factory is for sale. Foxconn declined to comment as the facility, technically, belongs to a corporate vehicle called SAKAI SIO International Guangzhou, a Foxconn subsidiary.

Luo Wansi, a property agent, made a small fortune as speculators poured money into real estate around the factory, an area designated by the local government as Foxconn Technology Town. But in recent weeks, Luo has spent most of her time trying to reassure buyers that the factory will not be abandoned.

The worrying began after whispers that Gou, who made a failed bid to become the Taiwanese opposition party’s presidential candidate last month, was about to sell the factory even before it produced anything.

“The local government has said this is a rumour, you have no need to worry,” Luo told her clients.

The local authority in Zengcheng said it had not received any information about a potential sale and that the factory was still on schedule. The original plan called for it to begin operations next month.

One source with direct knowledge of the project’s progress said that everyone involved was now “a bit embarrassed” about the uncertain future. “It wouldn’t be an easy sale, everyone knows,” the source said.

A number of economic headwinds have arisen since the groundbreaking ceremony two years ago.

The US-China trade war has cast a shadow over China’s role as a manufacturing and assembling hub for electronics products.

Global electronics giants, or potential clients for LCD screens, are leaving China for other places – Korea’s Samsung, for instance, is expected to shut down its last handset factory in China this year.

In addition, the market prospects for display in China have worsened as demand slumps amid a broad economic slowdown, said Hu Haifeng, sales manager for a Guangzhou industrial robot producer. Demand for car screens, for instance, has plunged in China as sales faltered.

“The entire intelligent manufacturing industry in China is very cautious and not optimistic about investments – with or without the trade war,” Hu said.

Cyrus Xu, who works for a precision instrument company in Zengcheng, said it made business sense for Gou to downsize or even to sell the factory, although doing so would certainly anger the local authorities, who had used the project as a point of pride and even a counterbalance to the US.

The agreement for the project was signed at the end of 2016, soon after Donald Trump won the US presidential election and threatened to levy tariffs of up to 45 per cent on Chinese products. The project was seen as a sign of Gou’s commitment to China, and the Foxconn founder showered praise on the local authorities for their efficiency. “The US government needs to see it,” Gou said then.

Eight months later, Gou and Trump announced that Foxconn would build a factory in Wisconsin to make liquid crystal display panels.

Since then, the two projects have been at the centre of a debate about whether China or the US are more suitable for business.

The future of the US plant has also become mired in uncertainty with local politicians questioning whether it will create the promised number of jobs.

Peng Peng, vice-president of a Guangdong-based non-governmental think tank, said the Chinese factory would turn from a blessing into a curse if Gou were to sell and no buyer could be found.

“If the project is abandoned, the impact on the local economy will be enormous,” he said.

In addition to direct economic losses, the Guangdong government’s plan of creating “clusters of related supply chains” would vanish.

According to original plan, the factory would generate an estimated value output in the next-generation display of 300 billion yuan (US$42.6 billion) by 2020, driving the output value of the electronic information manufacturing industry to more than 500 billion yuan.

“It will add to the uncertainties and worries about the Hong Kong-Guangdong technology innovation corridor,” Peng said, referring to the Greater Bay Area plan in which Hong Kong and Shenzhen would focus on research while places like Zengcheng would be bases for advanced manufacturing.

Zheng Tianxiang, professor at the Centre for Studies of Hong Kong, Macau and the Pearl River Delta at Sun Yat-sen University, a local government think tank, suggested that Beijing could take over the project if Foxconn wanted to sell.

“Even if it cut the size of the investment in the project, our government is capable of supporting the development of the plant.” Zheng said.