Foxconn's Great Retreat? China is once again at a crossroads

Wisdom Valley Trends

2024-04-25 21:52Published in Chief Wealth Advisor of Guangdong New Middle Class

Author | Melon slices

Edit | Yellow Lion Tiger

Recently, I observed Henan and found several unexpected events that show important trend changes.

Opportunities and challenges emerge at the same time, reflecting the current reality of China, and we are once again standing at a crossroads.

The first stealthy signal. Foxconn may be quietly brewing big changes.

In the first quarter, Henan, one of the top 10 provinces in foreign trade, saw a sharp drop in imports and exports (-23.4%), which was very unexpected.

The main influencing factor comes from Foxconn.

As soon as Foxconn sneezes, Henan Foreign Trade will catch a cold. Since the introduction of Foxconn in 2010, the giant company once accounted for more than 80% of Zhengzhou's exports.

And how much did Foxconn's import and export data decline in the first quarter?

Down 44.1%!

That's a huge number. As an OEM giant, Foxconn's import and export volume decreased by 48.68 billion yuan, exceeding the scale of Henan Province's foreign trade reduction (48.43 billion).

In other words, Foxconn single-handedly pulled the foreign trade data of Henan Province into a negative number.

Just a few years ago, in the first quarter of 2020, Foxconn's total import and export volume accounted for 55.6% of Henan Province, more than half of the country. Today, that percentage has rapidly declined to 38.9%.

This may be a historic turning point.

Of course, the changes at Foxconn are definitely not just beginning to happen today.

In 2023, the number of mobile phones exported by Henan will be 57.61 million units, which has already decreased by 14.5%.

In the first quarter of this year, the number of mobile phones exported by Henan fell off a cliff to 6.64 million units, a year-on-year decrease of 10.24 million units.

This may not only be a problem for Henan and Zhengzhou.

A number of large cities in China have reached the moment to say goodbye to "Foxconn dependence".

According to statistics from Zhigu Trends, Zhengzhou, Taiyuan, Nanning, Chengdu Hengyang, and other cities account for more than 20% of the total export value of Foxconn's foundry exports.

From 2010 to 2023, Zhengzhou's total foreign trade has skyrocketed by nearly 17 times, and Foxconn has certainly contributed to it.

But today, times have changed.

When U.S. Treasury Secretary Janet Yellen visited China and threw out the "overcapacity theory", she pointed to the new energy vehicles, lithium batteries, and photovoltaic industries. The mobile phone industry is not one of them.

Why not worry?

One of the reasons is that China's mobile phone production capacity has dropped from 70-80% of the world's peak to about 60% of the world's total, and the industrial transfer to India and Vietnam continues.

In October last year, the Global Times said that the tax department conducted tax inspections on Foxconn Group's key enterprises in Guangdong, Jiangsu and other places in accordance with the law, and the natural resources department conducted on-site investigations on the land use of key Foxconn enterprises in Henan, Hubei and other places. This move, which has spread across the country, also shows the subtle attitude of the official.

On the other hand, the relationship between India and Foxconn has entered a honeymoon period.

In January this year, Foxconn Group CEO Liu Yangwei was awarded the Order of Lotus of the Second Class by India. This is a national honor, which is related to promoting Foxconn's factory construction and investment.

Over the past few years, Foxconn has been increasing its investment in India.

According to media reports, Foxconn plans to double the capacity of an existing factory in Chennai, India, and strive to produce about 20 million iPhones a year by 2024, and double the number of employees to 100,000.

According to JPMorgan Chase & Co., Apple will produce 25% of the world's total iPhone production capacity in India by 2025.

It can be seen that Foxconn is determined to build India into the second core base of Apple production, and even pulled many Chinese engineers and "old drivers" over to engage in technology transfer.

So when we look at Henan, we will find a very interesting phenomenon, on the one hand, Foxconn resolutely stated that it wants to stay in Henan, and even "create a new Foxconn", on the other hand, foreign trade data is visibly declining.

Since 2011, when Zhengzhou Foxconn's first Apple mobile phone rolled off the assembly line, in the following 12 years, Henan has been firmly occupying the throne of "the first province of foreign trade in central China".

However, in the first quarter of this year, the seat of "the first province of foreign trade in central China" has fallen into the bag of Anhui next door.

In fact, the new business headquarters that Foxconn wants to lay out in Henan is not in the field of mobile phones, but in the field of robots, electric vehicles, battery technology and other new industrial layouts.

Liu Yangwei once said that a car is nothing more than an iPhone on four wheels. If Foxconn can make iPhones, why can't it build electric cars?

However, in the context of Xiaomi's three-year record of building cars and Apple's announcement to abandon car manufacturing, how much chance does Foxconn have of success?

It's really hard to say.

Because of this, we will see that Zhengzhou is definitely not waiting, but actively planning and making a series of countermeasures.

It is precisely the new energy vehicle industry that has high hopes, and Zhengzhou has even ambitiously shouted the goal of building the "first city of new energy vehicles".

In fact, in the past ten years since Foxconn landed, it was also an era of rapid development in Zhengzhou, which has accumulated strong capital.

A large number of high-quality, technically trained workers, high-efficiency infrastructure and industrial park facilities, etc., have already had the foundation for the transformation.

The rise of the automobile industry is alleviating Zhengzhou's "Foxconn dependence".

At present, Zhengzhou has 7 vehicle enterprises, including Yutong Bus, Dongfeng Nissan Zhengzhou Plant, Zhengzhou Nissan, SAIC Passenger Vehicle Zhengzhou Base, Haima Motor, Shaolin Bus and BYD, and plans to have a production capacity of more than 1 million new energy and intelligent networked vehicles in the city by 2025.

In 2023, BYD's vehicle production base with the largest production capacity and the largest number of employees will be officially put into operation at Zhengzhou Airport.

Zhengzhou BYD segment completed an output value of 33.47 billion yuan that year, produced more than 200,000 vehicles, and produced 7GWh of power batteries and energy storage.

Driven by the leader, Zhengzhou has 316,000 new energy vehicles, an increase of 3.5 times, and the growth rate is also quite amazing.

Intriguingly, BYD and Foxconn have quite similarities.

Their arrival not only means the landing of a giant enterprise, but also sets off a huge industrial change.

At present, Zhengzhou BYD has a total of four parks, including a vehicle park, an auto parts park, a power battery park, and a new material park, and has also invested in Nanyang.

Perhaps, in the end, it was not Foxconn, but BYD that made Zhengzhou full of confidence.

The second hidden signal is the population problem.

In the past, Henan never had to worry about the population, and it was an absolute labor export province.

Nowadays, the provinces with large populations have also begun to lack people.

The writer Lu Yao described the people of Henan as "Chinese gypsies" in "The Ordinary World" because they are always on the run to survive.

Henan's population will enter negative growth from 2021, with a decrease of 580,000 people that year. In 2022, under the influence of masks, the population returned to the mainland from the southeast coast, and the number of people still decreased by 102,000.

At the end of 2023, Henan's permanent population will decrease by 570,000 compared with the previous year, ranking first in the country.

In just three years, Henan's population has lost more than 1.3 million people, which is equivalent to the disappearance of a Lijiang or Qiqihar.

In the era of population stock, you can't grab people, you can only watch yourself being robbed.

An IP Jiangsu blogger sighed: I am from Henan, and my teachers will tell us from childhood to adulthood that we must study hard and not stay in Henan.

It is said that Henan people can run three times in their life, small run out of the county, middle run out of the province, and big run out of the country.

Source: Internet

However, Zhengzhou has shown a relatively strong population attraction in recent years and has become Henan's greatest hope.

In 2023, when the battle for people is unprecedentedly fierce, Zhengzhou withstood the pressure and had the last laugh.

Zhengzhou added 180,000 new permanent residents last year. It not only surpasses Beijing, Shanghai, Guangzhou and Shenzhen, but also leaves Hangzhou, Chengdu, Changsha and Wuhan behind, ranking second among the 26 trillion cities.

To the left or to the right, Zhengzhou will be the key to Henan's competitiveness.

It's like a microcosm of the whole of China, but the population has entered an era of negative growth, and big cities have become the last places of demographic dividends.

The third hidden signal is something that many people don't pay attention to.

Recently, there has been some news in Henan, about the late issuance of housing subsidies and the reduction of the establishment, some people think that Henan has a lot of financial pressure.

For example, take the reform of public institutions launched in Henan a few days ago, the intensity is not insignificant:

Provincial institutions shall be streamlined by no less than 50%,

The establishment of the business shall be reduced by no less than 30%,

The proportion of financial appropriation institutions should be reduced by not less than 10%,

In principle, public institutions with less than 16 staff at the section level and in the establishment of public institutions will no longer be retained.

Some "small, scattered and weak" public institutions may be directly abolished.

To a certain extent, this pressure comes from the pressure on land finance. Do you know how much Zhengzhou's land transfer income has decreased in recent years?

In the past three years, Zhengzhou's land transfer income has plummeted by more than 7%. In 2021, Zhengzhou's land transfer fee was 85.7 billion yuan, which fell to only 32.7 billion yuan in 2022 and continued to shrink to 23.68 billion yuan in 2023.

In just three years, nearly 3/4 of it has evaporated.

However, it may surprise you that Zhengzhou is actually trying to get rid of its dependence on land finance and embark on a path of "Shenzhenization".

If you take a closer look at Henan's general public budget revenue in recent years, you will find that it is actually relatively stable.

Moreover, in 2023, both income and expenditure will be growing.

Zhengzhou is similar, basically withstanding the impact of the decline in land finances.

Last year's economic report card has been quietly revealed: Zhengzhou's soaring is essentially an industrial soaring.

Just like Shenzhen, the dependence on land finance is less than 50%, and it does not rely on land sales to make a living, but relies on the hard power of "the first city of science and technology" and "the first city of industry".

In 2023, the added value of industrial enterprises above designated size in Zhengzhou will increase by 12.8% year-on-year, ranking first among major cities.

Among them, the automobile manufacturing industry with the fastest growth rate increased by 67.0% year-on-year.

Investment also continues to be tilted towards industry, especially advanced manufacturing. In 2023, Zhengzhou's industrial investment increased by 31.1% year-on-year, and investment in high-tech industries increased by 39.3% year-on-year.

There will be painful periods in getting rid of the dependence on land finance, but this is a general direction that must be firm.

Although the road is far, the journey is coming.

Bai Yansong once had an incisive summary: What Henan is, what China is.

In today's Henan, we can see the shadows of countless local struggles in transformation:

Industrial change, population adjustment, and sluggish property market......

In fact, these three things themselves are entangled and influencing each other, shaping our present, and there is hope for a breakthrough in the subtle predicament.

How Henan goes determines our future.

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