Foxconn billionaire said to assuage China about US plans

[BEIJING] Foxconn Technology Group Chairman Terry Gou has moved to reassure China's government the Apple Inc assembler remains committed to the country even as it expands US operations when President-elect Donald Trump takes office, people familiar with the matter said.

A high-ranking Chinese official recently expressed Beijing's concerns to Mr Gou, the people said, asking not to be identified because the conversation was private. In response, the Taiwanese billionaire told the senior bureaucrat he won't withdraw capital from China. The US investment plan hasn't been finalised and is dependent on the policies of the incoming administration, Mr Gou said, according to the people.

China is pivotal to Foxconn's massive electronics assembly operation, which cranks out more iPhones and iPads than any other in the world. One of China's largest employers, Foxconn has said it's in preliminary discussions to broaden its investment in the US , without elaborating.

Mr Trump has often articulated his vision of bringing manufacturing jobs back to America from China, which became the world's factory floor thanks to cheap labor and central policy support. And he's singled out Apple in the past.

A potential strategic shift by Foxconn unnerves Chinese authorities because the company is said to hire roughly a million workers across the country. Major factory job cuts have been known to trigger protests in the past, even as maintaining social stability remains among the top priorities of the ruling Communist Party.

"Gou wants officials to know that he still sees China as a market of greatest importance," said James Yan, Beijing-based research director for Counterpoint.

"Foxconn very much relies on China for both assembly and consumer businesses and its suppliers are also in Asian countries. That is not going to change at least in the next five years."

Foxconn's announcement came hours after a pledge from SoftBank Group Corp's Masayoshi Son to invest US$50 billion in the US and create 50,000 jobs. A document Mr Son held up for reporters after a December meeting with the President-elect included the words "Foxconn" and "$7 billion" alongside SoftBank's numbers. Shares of the Japanese company dropped as much as 2.5 per cent in Tokyo on Tuesday.

It remains unclear how SoftBank and Foxconn may be working together, or what sort of promises may have been made to Mr Trump. Mr Gou told the Chinese official he was invited to the former reality TV star's Jan 20 inauguration but didn't plan on attending, according to the people familiar with the matter.

The Taiwan Affairs Office of the State Council and the Association for Relations Across the Taiwan Straits, the two mainland Chinese organisations that handle relations with Taipei, didn't answer calls seeking comment. Foxconn didn't respond to e-mailed requests for comment and calls to company spokesmen went unanswered.

Foxconn now operates factories in Chinese cities including Zhengzhou, Shenzhen, Taiyuan and Wuhan. But rising wages and persistent worker shortages are prompting electronics manufacturers look elsewhere: Lenovo Group Ltd and Oppo are among those that have set up facilities in South-east Asia, for instance.

Foxconn itself has been increasing its use of robots to reduce its reliance on migrant labour, and studying plans to increase its footprint in India.

Any shift back to the US may involve Apple, which now accounts for about half the revenue at Foxconn's main listed arm, Hon Hai Precision Industry Co Apple Chief Executive Officer Tim Cook, however, told 60 Minutes in 2015 that the US simply lacks enough skilled workers in advanced manufacturing.

Then there's cost. The components of an entry-level iPhone 7, which sells for US$649, costs US$224.80, according to research firm IHS Inc. Assembling those parts into a finished product, mostly in China, costs about US$10 now, Jason Dedrick, a professor at Syracuse University, has estimated. Doing that work in the US would add US$30 to US$40, he reckons.

Foxconn's rivals however are reportedly open to the possibility. Pegatron Corp, another major assembler of Apple products, can expand its US capacity three- to five-fold if necessary, a Taiwanese financial outlet cited Chairman Tung Tzu-Hsien as saying on Sunday.

"Foxconn may expand its research and development as well as some high-precision manufacturing to the US ," Mr Yan said.

"But the main part of the assembly business will stay in China."

BLOOMBERG