The IT industry is fleeing China – Hi-Tech – Kommersant

The IT industry is fleeing China – Hi-Tech – Kommersant

A slowdown in the economy and rising geopolitical tensions have seen more technology companies rush to move their production out of China. Among them are Apple suppliers, as well as Samsung, Microsoft, Google, Amazon and many others.

Last week it became known that by the end of 2022, the export of Apple smartphones from India reached $2.5 billion. This is twice as much as a year earlier. Foxconn Technology Group and Wistron Corp have produced and exported iPhones worth about $1 billion each, according to Bloomberg sources. Exports of another major contractor, Pegatron Corp., amounted to approximately $500 million.

Considering that the total volume of Apple smartphones production has not changed compared to the previous year, these statistics speak not only and not so much about the increase in exports from India, but about Apple’s desire to diversify its supply chains as much as possible and stop being dependent on China.

The main alternatives to the Chinese assembly of the iPhone should be factories in India and Vietnam. So, in India, Apple previously released the iPhone SE, 12 and 13 models. They were assembled at the Foxconn Technology plant, an Apple partner, in the suburbs of Chennai. Last year, the release of the iPhone 14 also began there.

Back in 2020, Tim Cook’s company announced its intention to transfer part of the production capacity for the production of Mac laptops outside of China. And at the end of 2022, it became known that the American company intends to transfer part of the production of its headphones, AirPods and Beats, from China to India. The release of headphones in India this year will be done by the same Foxconn. And later, Luxshare Precision Industry and its affiliates should join it. The latter is already releasing AirPods in Vietnam and China, but plans to start assembling in India.

Finally, Reuters recently announced the intention of another Apple supplier to move part of its production outside of China. We are talking about the Chinese display manufacturer BOE Technology Group, which, according to sources of the agency, is negotiating the lease of land in Vietnam for the construction of two factories. The company intends to invest $400 million in the project. The company supplies screens not only for Apple, but also other giants such as Samsung and LG are on the list of its clients.

Apple is far from the only industry giant that has recently announced its intention to move its production out of China. There are already quite a few big names on this list.

Back in 2019-2020, Samsung withdrew part of the production of smartphones and personal computers from China to Vietnam. And last summer, the company announced the transfer of the entire production of displays from China and South Korea there. The South Korean company is generally the largest foreign investor in the Vietnamese economy. Last month, the Vietnamese government announced that the company intends to increase its investment in the country’s economy from $18 billion to $20 billion: the Korean manufacturer decided to expand its plant in Bac Ninh province.

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The trend of systematic withdrawal from China is clearly shown by statistics. Eight years ago, Samsung had about 60,000 employees in China. By the summer of last year, their number had dropped to 10,000. At the same time, the number of personnel in the same South Korea has grown by 20% over the past five years.

Like Samsung, another South Korean electronics manufacturer, LG, has chosen to move its production from China to Vietnam, which, in turn, is investing $4 billion in the production of cameras for smartphones. At the same time, LG has already liquidated factories in China, for example, in Tianjin, Kunshan, and also removed the production of refrigerators for export to the United States from Zhejiang province to South Korea.

Massively leaving China and Taiwanese electronics manufacturers. And it’s not just about Foxconn, Wistron and Pegatron, which, in addition to Apple, are suppliers to companies such as Dell, Sony, Tesla and Volkswagen. ASUS is systematically reducing its production in the country, preferring to establish production in Vietnam and the USA. In 2019, other manufacturers of personal computers, HP and Dell, also announced plans to transfer production outside of China. HP then told the Nikkei that it intends to move 30% of its notebook production capacity from China to Taiwan and Thailand. And Dell considered Taiwan, Vietnam and the Philippines as an alternative to China for the production of laptops.

Microsoft is now shipping Xbox game consoles not from China, but from Vietnam’s Ho Chi Minh City. Amazon is getting its FireTVs from India and recently shut down its Kindle e-reader factory in China. And Google will now assemble the latest models of its Pixel smartphones not at the Foxconn factory in China, but in Vietnam.

There are several reasons for the mass exodus of technology companies. First of which was the COVID-19 pandemic. It was she who provoked the closure of many factories in China for quarantine in 2020, leaving global manufacturers of electronics, household appliances and electric vehicles with virtually no supply of new products.

After all, China was the main production shop for dozens of global brands. For example, Apple produced about 90% of components for iPhone, iPad and MacBook in China. And this figure was relevant in the spring of last year. Having received such an unpleasant lesson in 2020, many manufacturers are thinking about diversifying production.

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The second reason – political. The trade war that began between China and the United States during the presidency of Donald Trump has resulted in increased import duties on both sides, restrictions on the export of American technology, and increased pressure from the Chinese authorities on foreign business. At the same time, given the position of China and the United States in the global economy, it is clear that it affects not only Chinese and American companies.

Third reason – economic. In 2022, China’s GDP grew by 3%. And this is one of the worst indicators of the country’s economy over the past 40 years. For comparison: in 2021, GDP grew by 8.4%. The reason for such a serious decline was the same COVID-19 pandemic and the zero tolerance policy, due to which all the largest cities of the country spent almost the entire last year in quarantine. The Chinese authorities refused to lift the tough coronavirus restrictions until they turned into mass protests. At the end of the year, it was decided to immediately remove almost all possible restrictions. This decision has not yet had time to affect economic indicators, in contrast to the off-scale indicators of morbidity and mortality.

“Weakening economy. Quarantines related to COVID-19. Mutual trade sanctions. Possible conflict over Taiwan. There are many reasons for companies to reduce their activities in China,” said Derek Sissors, senior fellow at the American Enterprise Institute think tank. Therefore, the news that another large company has decided to say goodbye to China will not stop appearing in the foreseeable future.

Kirill Sarkhanyants


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