Foxconn's iPhone plant in Zhengzhou built on billions in Chinese government aid - report

Posted:
in iPhone edited December 2016
Foxconn's Zhengzhou factory -- where about half of all Apple's iPhones are made -- exists in large part because of billions of dollars in handouts and tax breaks from the Chinese government, a report pointed out on Thursday.

Image Credit: Gilles Sabri? | New York Times
Image Credit: Gilles Sabri? | New York Times


Some $1.5 billion alone was provided by local government to help Foxconn build worker housing and large portions of the factory, the New York Times said. It continues to offer money against energy and transportation costs, while paying bonuses for meeting export targets, and even helping the company recruit and train new staff -- with hiring subsidies to boot.

The full extent of Foxconn's government backing is uncertain, as subsidies haven't been publicly disclosed by either party. The Times' information is said to come from secret government records, as well as interviews with over 100 people, ranging from truck drivers through to tax specialists and both current and former Apple executives.

Officially, Apple told the Times that while it was aware of Foxconn getting infrastructure aid, it hasn't been party to the manufacturer's talks with government, and isn't aware of any specific grants, subsidies, or tax breaks.

The city of Zhengzhou allegedly let Foxconn skip both corporate and VAT taxes for five years, with a promise of halving rates for the following five. Similarly, it lowered the amount of money it took in social insurance and other payments by up to $100 million per year, and granted a $250 million loan.

It has even paved roads and built power generators and pipelines, and offered a 5 percent discount on energy bills. Over $10 billion was spent on expanding an airport just miles away from the Foxconn factory.

Apple has taken advantage of low Chinese manufacturing costs to keep profits high, while deflecting concerns about labor, safety, and environmental issues. The company has worked to address those problems, but hasn't completely rectified them.

Comments

  • Reply 1 of 14
    The United States has to do this type of thing to get manufacturing back to the US...if it wants it. I am not sure how else you combat this properly. What is unclear for me is it really worth it or is there a better solution?
  • Reply 2 of 14
    dachardachar Posts: 330member
    China and what has happened in Ireland demonstrates that a global company such as Apple can set up its manufacturing and corporate structures in places that offer the best deals. Is this unfair to other counties in breach of international trade agreements or is it forward thinking job creating and long term investment by regional or national governments? It will be interesting to see in Trump will be prepared to offer incentives to persuade Apple to return some of its manufacturing to the USA, and if he does, how other counties will then react during his attempt to encourage more free trade with the USA. 
  • Reply 3 of 14
    512ke512ke Posts: 768member
    Yeah guess what? Other countries pay big bucks and charge their taxpayers big bucks, to promote industry.

    Carrier cost wat? 70$M to save 700 jobs?

    If you want the CLUSTER of capable high tech factories needed to produce iPhones? Pres Elect Trump, you are gonna pay a LOT more than $70 Million.

    It has to be creating the right conditions for LOTS of companies to repatriate manufacturing. With a FORTUNE in govt subsidies/corporate welfare.

    You can't just slap tariffs on Chinese goods and spark a trade war. That will simply undermine the US economy.

    The solution is Uncle Sam taking out the checkbook.




    jfc1138anantksundaram
  • Reply 4 of 14
    I wonder if China's deal with Foxconn has any exit penalty... e.g., "If Foxconn moves manufacturing out of China within the first 15 years, Foxconn must pay a fee of $X to the government."

    Typically govt incentives come only when the manufacturer makes some enforceable long-term commitment.
  • Reply 5 of 14
    I smell a bunch of lawsuits heading Apple's way. In many places state aid like this is very illegal.
    I suspect that Foxconn is rotten to the core. Competition for that mob in Korea perhaps.

  • Reply 6 of 14
    levilevi Posts: 343member
    Good for us, consumer and shareholders. We get iPhones more cheaply, and shareholders make more money. Good for the workers and politicians that benefit. Probably not so good for everyone else - hidden taxes, lost benefits, etc. It's no different that what we do here giving massive tax incentives and free capital for companies like Volkswagen, Carrier, and sports franchises for jobs and a shiny new buildings. 
  • Reply 7 of 14
    sog35 said:
    I smell a bunch of lawsuits heading Apple's way. In many places state aid like this is very illegal.
    I suspect that Foxconn is rotten to the core. Competition for that mob in Korea perhaps.

    is this a joke?

    there is no lawsuits in China. You sue the Chinese government and they will exterminate you
    Apple are indirectly in receipt of State Aid from China. Competitors might take issue with that. Nokia and Blackberry for example.
    The rise of the iPhone mirrored the collapse of their businesses. Far fetched?
    All it takes is one or a few Syhsters to think this is a good idea and bingo, you have a lawsuit (or twenty)
  • Reply 8 of 14
    dewmedewme Posts: 1,497member
    sog35 said:
    This is what governemnt suppose to do.

    Provide an environment to grow jobs locally and build infrastructure.

    But NY times will somehow show this as a negative. Or should China do nothing and let the jobs go to India, SE Asia, and South America?
    Exactly.

    It's rather silly and naive to think otherwise.

    These incentive and stimulus programs have always been a pervasive part of the US economy at all levels of government. The federal government has entire agencies like the Economic Development Administration (EDA) purposely tasked with enhancing economic growth and innovation for the benefit of US based industries and businesses. State and local governments are just as actively involved in programs to bring jobs and taxes to their jurisdictions.  

    I can't believe that a major US news agency would try to spin this FoxConn deal into a China-vs-US controversy. The same exact thing has been taking place surrounding the siting of just about every major professional sports franchise (NFL, NHL, MLB, NBA, etc.) in every US city that has a team. Cities and local municipalities bend over backwards financially, install all kinds of infrastructure, and levy taxes on all their residents (whether they are sports fans or not) just for the privilege of getting a professional sports company to locate to their city and take on their city's name.

    Business runs on money and you have to spend money to make money.
    edited December 2016 tzm41
  • Reply 9 of 14
    jfc1138jfc1138 Posts: 3,090member
    dachar said:
    China and what has happened in Ireland demonstrates that a global company such as Apple can set up its manufacturing and corporate structures in places that offer the best deals. Is this unfair to other counties in breach of international trade agreements or is it forward thinking job creating and long term investment by regional or national governments? It will be interesting to see in Trump will be prepared to offer incentives to persuade Apple to return some of its manufacturing to the USA, and if he does, how other counties will then react during his attempt to encourage more free trade with the USA. 
    North Carolina has already done that for an Apple server setup. Nevada for that failed Saphire plant that Apple has repurposed etc. 
    edited December 2016
  • Reply 10 of 14
    In 1994, the San Jose Mercury published an article by Rebecca Smith called "Why Intel jilted the golden state" - see http://icrt.co/pdfs/1994_07_20_Why_Intel_jilted_the_golden_state_San_Jose_Mercury_Rebecca_Smith.pdf                                                 

     the article documented how Intel had developed an "Ideal incentive matrix" which was a shopping list of tax breaks and other incentives they were demanding of local communities that were bidding to recruit Intel - it is an amazing stroy and amazing list - and a blueprint for what Apple and Foxconn have done in China - and a key insight of how global corporations now dominate the global economy 
    edited December 2016
  • Reply 11 of 14
    wood1208wood1208 Posts: 1,480member
    Good for Chinese people who spent few billions to provide environment(infrastructure, incentives) for Apple to manufacture products and in return for several years Chinese people will rip benefits in thousands of jobs.
    edited December 2016
  • Reply 12 of 14
    crowleycrowley Posts: 5,460member
    sog35 said:
    I smell a bunch of lawsuits heading Apple's way. In many places state aid like this is very illegal.
    I suspect that Foxconn is rotten to the core. Competition for that mob in Korea perhaps.

    is this a joke?

    there is no lawsuits in China. You sue the Chinese government and they will exterminate you
    Apple are indirectly in receipt of State Aid from China. Competitors might take issue with that. Nokia and Blackberry for example.
    The rise of the iPhone mirrored the collapse of their businesses. Far fetched?
    All it takes is one or a few Syhsters to think this is a good idea and bingo, you have a lawsuit (or twenty)
    They might take issue with it, but how are they going to sue them?

    There are no jurisdictions that I'm aware of that prohibit a corporation accepting state aid directrly or indirectly from a foreign government when on foreign soil.  That would be a very odd law, since countries generally only make laws that apply on their own soil.

    The only thing I can assume you are referring to is the Ireland situation, but that is the EU law, and the EU sets supranational law across its members states, which include Ireland.  China isn't a member of the EU or any other economic blocs that have state aid laws.
    anantksundaram
  • Reply 13 of 14
    fallenjtfallenjt Posts: 3,854member
    sog35 said:
    This is what governemnt suppose to do.

    Provide an environment to grow jobs locally and build infrastructure.

    But NY times will somehow show this as a negative. Or should China do nothing and let the jobs go to India, SE Asia, and South America?
    Not really. China plays anticompetitive games to prevent the business going other countries. They did the same thing for their citizens on traveling by subsidizing 70% the travel cost so these Chinese can go around Asia to trash these countries
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