February 10, 2020 / 6:26 AM / 2 months ago

Breakingviews - iPhones will display China's back-to-work power

FILE PHOTO: The logo of Foxconn, the trading name of Hon Hai Precision Industry, is seen on top of the company's building in Taipei, Taiwan March 30, 2018. REUTERS/Tyrone Siu/File Photo

HONG KONG (Reuters Breakingviews) - The next iPhones will test China’s ability to restart its economy. Apple supplier Foxconn, formally known as Hon Hai Precision Industry, is re-opening a key Chinese plant as authorities ease curbs. But the handset-maker and other companies face labour shortages as workers struggle to travel with ongoing contagion fears around a coronavirus outbreak. It’s a reminder of the complexity of restarting supply chains. 

Foxconn has won permission to resume operations at its mega Zhengzhou facility in northern China. Production at the plant, which some analysts reckon account for the bulk of the iPhone’s assemblies, has been halted for over two weeks. The company is still in talks with officials to restart two other major plants, according to Reuters. One, in the southern city of Shenzhen, is focused on new iPhone models slated for this year, local media reports. 

There are practical limitations, though. Barely 16,000 workers, less than 10% of the workforce, returned to the Zhengzhou factory, Reuters reported on Monday, citing a person familiar with the matter. Many employees of Chinese companies crisscrossed the country to go back to their hometowns for the Lunar New Year holiday, that was then extended. Citywide lockdowns make it hard for people to move around. Analysts at Citi estimate that by Tuesday, only 30% of China’s total workforce will be able to return to work.

And that doesn’t factor in the immense challenge of preventing fresh cases of infection on factory floors. Most companies may have to enforce additional quarantines for people returning from virus-hit areas, as well as implement daily temperature checks. Foxconn has even resorted to manufacturing its own surgical face masks – up to two million a day -  for its hundreds of thousands of employees.

Following China-U.S. trade tension, the current disruption will fuel debate about the merits of companies allowing supply chains to consolidate too much in a single country. China’s looming labour shortage, though, is even more pronounced because the virus outbreak coincided with the holidays. Shares of Foxconn have slumped nearly 10% since the start of the year, compared to a less than 4% dip in the benchmark Taiwan index. Officials may be ready to do business but investors are pricing in ongoing disruption.

Breakingviews

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