The investigation into Foxconn
Why it is happening, an on-the-ground perspective
There have many been headlines the last few week about China “investigating Foxconn,” Apple’s primary supplier of electronics.
From Bloomberg: “In the current investigation, tax authorities are conducting checks on Foxconn subsidiaries in Guangdong and Jiangsu provinces, the state-run Global Times said Sunday, citing unidentified people with knowledge of the matter. The report also said natural resources officials are looking into the company’s use of land in Henan and Hubei provinces.”
More from the WSJ, BBC, and CNN.
What is interesting is the lack of in-depth analysis, and the assumption that it is primarily because Foxconn’s founder, Terry Gou, is running for President of Taiwan.
The on-the-ground view and the hierarchy of reasons why the government is looking into Foxconn:
1: The "reviews" are more because local governments are fining & "taxing" firms due to a shortage of revenue. This is happening all over the country. The central gov is really starting to go after unfair "taxation" and one of the ways to do that is by checking business records.
2: What happened to the money that has been paid over the years? There have been significant tax incentives and other subsidies given out over the years to Foxconn and its suppliers. Has this money been given out “appropriately” meaning was it used for the right purposes? Was there any graft or corruption that occurred such as a special “fee” sent to a certain individual's private bank account? Were taxes and other payments that were collected from Foxconn used appropriately? All of this, and more, is being looked into by the authorities.
3: An after-effect of "the letter" Foxconn leadership sent last November to authorities about COVID restrictions and their impact, especially related to iPhone city in Zhengzhou and the challenges there. This is part of the fallout from that.
4: A shot across the bow to former CEO of Foxconn (Hon Hai) Terry Gou as he gears up for the election.
5: A warning to Apple and its suppliers that they are not “untouchable” and should adhere to regulations, including reporting misdeeds, grafts and corruption.
6: A warning to other companies and governments that no one is untouchable.
The Chinese government does not have an interest in accelerating/forcing supply chains to move our of China, or upset a company like Apple (even though they are moving pieces of their supply chain, albeit by small amounts so far). Remember Tim Cook visited China and the Ministry of Commerce the week before this investiation was annouced, committing to China and the Minister Apple’s continued presence in the country. If there was any assumption that Apple’s business would be affected by these, other other, investigations, he would not have gone to China.
Apple’s position in China is solid, despite the headwinds in the economy and a challenging US-China relationship.