Samsung and Apple’s OEM partners are the latest US tariff-eluding manufacturers to shift production from China to Vietnam.
Vietnam is chipping away at China’s export base, spurring local Chinese officials to turn to Beijing for new policies to retain businesses and jobs amid an exodus of manufacturers and tax revenues.
Samsung has one after another shut its two largest phone-assembling plants in Tianjin and Huizhou cities in the southern Guangdong province in late 2018 and 2019.
After 27 years of production, the South Korean tech giant flicked the switch on its production lines in Huizhou in September last year and furloughed about 6,000 workers. Many of them are still living off welfare now that Covid-19 has battered the local jobs market, according to the Guangzhou-based Southern Metropolis Daily.
Samsung’s pullout from Tianjin and Huizhou led to closures of upstream plants in the cities that used to supply parts to Samsung, and even the bargain eateries and supermarkets that catered to workers.
Now, more than half of Samsung’s latest flagship handsets, including its cutting-edge foldable phones, are assembled in little-known towns across Vietnam’s Bac Ninh and Thai Nguyen provinces.
Communist Party cadres in the upstart manufacturing country are replicating the strategies from their Chinese peers and rolling out the red carpet with big tax discounts, rock-bottom land prices and ample cheap labor. Samsung also makes flat screens and other displays in Vietnam.
Before Samsung pivoted from China, its 2011 financial report revealed that its Tianjin and Huizhou bases once cranked out almost half of its worldwide smartphones.
While both Tianjin and Huizhou have diversified their manufacturing sectors away from foreign-invested firms such as Samsung, the exodus of Samsung and the like and the ripple effect on local supply chains have put a dent in the two cities’ economic output and exports as the coronavirus slashes external demand.
The cities’ statistics say Tianjin’s GDP contracted by 3.9% in the first half of the year, and total exports were down 3.3%. The impact is more intimately felt in Huizhou, whose economy is way smaller. Its exports plummeted by 28% in the first six months, dragging GDP growth to a negative 4.3%.
There have also been reports since early this year that Apple will start taking steps to shift production of its hit products, starting with peripherals like AirPods, to Vietnam where its OEM partners are rushing to tap the potential.
Apple’s popular wireless Bluetooth earbuds are mostly made by Goertek Inc and Luxshare Precision Industry. The two Chinese suppliers, based in Shandong and Guangdong provinces whose earnings soared in 2019 thanks to fat AirPods orders, are also leading the charge of Chinese investments to buy plots in Vietnam to build new assembly lines there, China Business News reported.
MacRumors, a tech website tracking Apple products, reported in May that Western buyers had already received AirPods Pro products marked “Assembled in Vietnam” on external packaging.
Japan’s Nikon Keizai Shimbun also revealed that Apple had started trial production of AirPods with Goertek and Luxshare in Vietnam in the first quarter of the year, and the annual output could be 15% of the global total shipment.
These developments have fueled rumors about whether Apple will soon start making iPhones outside China. Apple news website Apple Insider claimed in August that the US tech behemoth had assessed the manufacturing capabilities of Luxshare’s Vietnam base, after the latter injected US$454 million into its three subsidiaries in the country.
Apple’s largest OEM partner Foxconn, known for its Chinese plants that usually sprawl over a square kilometer, also confirmed reports in August that 30% of its total device shipment in the first half had been from outside mainland China, such as its bases across Southeast Asia and South Asia.
Ning Nanshan, an analyst with the China Renmin University’s National Academy of Development and Strategy, who is also a well known financial commentator, told Asia Times the fact that Vietnamese factories and workers could mass-produce complex models from Samsung and Apple was proof of the country’s rapidly maturing manufacturing capabilities and well-rounded supply chains.
“[Apple’s CEO] Tim Cook said in December 2017, when he visited a Luxshare plant in Suzhou, near Shanghai, that Apple would not shift OEM production to Southeast Asia merely for the low cost there, as Apple also had stringent engineering, quality control and supply chain requirements.
“But three years later Apple’s partners have already begun making some products in Vietnam, and this tells a lot about the progress being made there,” said Ning.
Vietnam’s total exports rose to $264.3 billion in 2019, compared with 2010’s figure of $72.2 billion, according to statistics from the World Trade Organization. Mainland China’s corresponding figures were $1.577 trillion in 2010 and $2.5 trillion in 2019.
Vietnam’s per capita export volume is already higher than China’s.
While trying to retain manufacturers, many local governments across China that still rely for a lion’s share of their GDP on exports, are howling for action by Beijing.
A memo from Zhejiang’s provincial department of commerce to the Chinese Commerce Ministry viewed by Asia Times noted that exports were still vital in keeping the local economy ticking and that, for the sake of employment and fiscal income, Beijing must formulate new measures and dole out subsidies amid “a hollowing out of foreign direct investment and export-oriented manufacturing.”
Zhejiang’s total export stood at $456.3 billion last year but major foreign-invested projects like Volkswagen’s plant as well as a joint venture between Mercedes and local automaker Geely in the province reduced production since last year. Sunny Optical, a major camera components supplier for Apple that is based in Zhejiang, has also set up a factory in Vietnam.
Beijing is also being prodded to give more assurance to foreign investors and local export-oriented enterprises as President Xi Jinping refocuses the Chinese economy away from exports and international trade with his new “internal circulation” drive to spawn internal demand.
China Business News cited its source as saying that the Commerce Ministry had this month drafted a report on the emerging exodus of manufacturers across a number of provinces and submitted it to the central leadership.
Key policy recommendations included more power be delegated to local governments as they design new policies to retain businesses, as well as higher redundancy and severance pay requirements to make mass lay-offs more expensive, among others.
The government of Zhengzhou, the capital of the central Henan province that is known as the “iPhone city” thanks to Foxconn’s largest plant there, has signed a new deal with the OEM giant to offer more tax rebates, according to local papers.
The deal, signed in September, predated Apple’s launch of its latest models and is seen as a result of Foxconn’s previous hints at shifting some capacities overseas, according to the Asia Times.
By FRANK CHEN.