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iPhone factory lockdown shows risks of reliance on China, analysts say

Foxconn, Apple’s main subcontractor, has seen an increase in Covid-19 cases at its Zhengzhou location.

The closure of the Foxconn factory in Zhengzhou, the world’s largest producer of iPhones, has exposed some of the risks of reliance on China’s manufacturing sector without Covid, analysts told AFP.

Foxconn, Apple’s main subcontractor, has seen an increase in Covid-19 cases at its Zhengzhou site, leading the company to shut down the massive complex in an effort to contain the virus.

Then images emerged of panicked workers fleeing the site on foot following allegations of poor conditions at the facility, which employs hundreds of thousands of workers.

Foxconn is the largest private sector employer in China, with more than a million people working across the country in its approximately 30 factories and research institutes.

But Zhengzhou is the crown jewel of the Taiwanese giant, producing iPhones in quantities not seen anywhere else.

“In a normal situation, almost all iPhone production takes place in Zhengzhou,” said Ivan Lam, an analyst at specialist firm Counterpoint.

Risk of ‘strong dependence’

Apple manufactures more than 90 percent of its products in China, which is also one of its major markets.

“It’s another bad example for Apple when it comes to supply chain stability,” Alicia Garcia Herrero, Asia-Pacific manager for Natixis bank, told AFP.

Experts say the company’s heavy reliance on China “brings potential risks, especially if the US-China trade war shows no signs of de-escalation,” according to a consulting firm Dezan Shira & Associates.

Opened in 2010, the factory in Zhengzhou employs 300,000 people who live on the site year-round, creating a sprawling tech hub known as “iPhone City.”

It consists of three factories, one of which produces the iPhone 14, Apple’s latest handset model.

Apple has not responded to AFP’s request for comment on exactly how the lockdown will affect production.

Analyst Lam estimates the partial cessation of work at the site has resulted in a loss of “10 to 30 percent” of production, but said some production has also been temporarily relocated to other Foxconn locations in China.

According to Foxconn, the site is currently operating in a “closed loop” with workers avoiding any contact with the outside world, while their daily bonuses have quadrupled.

“This incident may have a limited impact,” estimated Apple product analyst Ming-Chi Kuo on global iPhone manufacturing.

“But suppliers in China must learn to improve the efficiency of closed-loop production in response to the zero-covid policy,” he added.

Search elsewhere

China is the last major economy committed to a zero-covid strategy, persevering with rapid lockdowns, mass testing and lengthy quarantines in an effort to stamp out emerging outbreaks.

But new variants have tested local officials’ ability to extinguish flare-ups faster than they can spread, leaving much of the country under an ever-changing mosaic of Covid fringes.

Apple has already started outsourcing some of its manufacturing to India and is looking to Vietnam in an effort to divert itself from Chinese manufacturing — a trend accelerated by Covid.

But it’s not that simple – last year nearly 7.5 million iPhones were made in India, just three percent of Apple’s total production.

“Increasing the capacity of factories (in India) is difficult,” Lam said.

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