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Stuck with declining smartphone exports, Zhengzhou’s drive for new energy vehicles aims to break its reliance on Foxconn and Apple. But is the region already too late to the race?

By Chen Weishan , Xu Ming Updated Dec.1

Tianjian Lake Smart Internet Industrial Park Demonstration Center, which is known for its resemblance to a sea snail when viewed from above, High-tech Development Zone, Zhengzhou, Henan Province, July 14, 2024 (Photo by VCG)

Labor demand from Apple supplier Foxconn’s factory in Zhengzhou, Henan Province surged once again with the release of Apple’s iPhone 16 series on September 20.　

Recruitment agents offered increasing incentives to attract workers, with signing bonuses rising from 5,000 yuan (US$706) per person in June to 8,000 yuan (US$1,130) in August. Even in mid-September, bonuses remained as high as 7,000 yuan (US$989), reflecting the rush to meet production orders.　

This sparked speculation that Foxconn, Apple’s largest supplier, might be making a “return” to Zhengzhou.　

Foxconn’s 2010 arrival in Zhengzhou transformed the city into the world’s largest production hub for Apple’s iPhones, spurring growth in the local mobile phone industry and boosting its economy for over a decade.　

But there have been concerns over Foxconn shifting production capacity to Southeast Asia, particularly to India and Vietnam, as Apple diversifies its supply chain. Since 2020, phone production in Zhengzhou has declined, with exports dropping by 26.4 percent in the first half of 2024, nearly halving Henan’s total mobile phone exports. Foxconn’s production shift abroad is seen as the primary cause.　

Despite the current spike in labor demand, it is not a clear indicator of Foxconn’s long-term return to phone production. Each year between July and October, recruitment increases around Apple’s new product launches – such as with the iPhone 16 series.　

In July, Foxconn’s parent company, Hon Hai Technology Group, announced a 1 billion yuan (US$137m) investment to build a new business headquarters in Zhengzhou focusing on new energy vehicles (NEVs). This is regarded as a solid indicator of Foxconn’s commitment to Zhengzhou, though not related to phone manufacturing.　

Zhengzhou is rethinking its dependence on Foxconn as sluggish global markets and fierce competition among Apple suppliers weigh on its phone industry. Supply chain shifts to other countries are likely to continue as a long-term trend, media reports suggest.　

With mobile phone exports dropping, the city is exploring other industries, and the NEV sector holds the most potential to drive growth.

iPhone City

Zhengzhou became home to Foxconn’s largest factory in the Chinese mainland in 2010, following the company’s relocation from Shenzhen, Guangdong Province amid scandals involving employee suicides and increasing labor and land costs. Between 2010 and 2016, over 460 million phones were produced in the factory, accounting for 40-50 percent of Apple’s global production, earning Zhengzhou the name “iPhone City.”　

Foxconn’s presence dramatically reshaped the city from a largely agricultural inland province to a hub for foreign trade, which grew nearly 17-fold between 2010 and 2023. According to the Henan Daily in June, Foxconn accounted for 80 percent of Zhengzhou’s total foreign trade volume and 60 percent for the entire province of Henan.　

Foxconn’s operations also turned Zhengzhou into a hub for electronics manufacturing, with total mobile phone production peaking at 300 million units in 2017, Zhengzhou-based paper Dahe Daily reported. The sector was a major job creator for the province, employing 300,000 workers during that time.　

By 2023, however, phone production had fallen to 143 million units, with non-Apple brands seeing the steepest declines. Employment in the sector now hovers between 100,000 and 200,000.　

While Foxconn’s shift to India is often blamed for the downturn, the drastic reduction in non-Apple phone production also had a significant impact.　

Zhengzhou’s phone production is centered in its Intelligent Terminal Industrial Park, located in the city’s Airport Economy Zone. Initiatives in 2014 to attract Chinese phone brands, like ZTE and Tianyu, initially showed promise, with the city producing 24 million non-Apple phones that year.　

Between 2014 and 2017, non-Apple phone production in Zhengzhou kept climbing, reaching 196 million units in 2017. That same year, Foxconn produced fewer than 100 million phones. By 2023, when Zhengzhou’s overall phone production dropped to 143 million units, Foxconn still contributed 83 million. This indicates that the decline in Zhengzhou’s phone output was more influenced by other phone manufacturers than Foxconn. The same applies to declines in exports, as many non-Apple phone makers in the city are heavily export oriented.　

This highlights Zhengzhou’s core issue: the lack of a major phone manufacturer to offset its contraction of phone production capacity after 2017. The brands introduced to the city in 2014 were Chinese legacy phone manufacturers that gradually lost ground in an increasingly competitive smartphone market dominated by domestic competitors Huawei, Xiaomi, Oppo and Vivo.　

ZTE, which began producing phones in 1999, was once a leading player and was the first Chinese brand to enter the North American market in 2007. But its market share declined after 2011, and by 2016, its shipment volume had plummeted by 36.5 percent. Similarly, Tianyu, a top-selling phone brand in China around 2007, was gradually pushed out of the market and is now on the verge of bankruptcy.　

Despite efforts from Zhengzhou and Henan to attract another major phone brand, as outlined in their 2017 and 2022 development plans, these attempts have fallen flat. Even at the peak, the companies they managed to bring in did not perform well. For example, in 2016, Zhengzhou introduced a company that claimed it would produce 30 million smartphones annually, but its parent company was primarily focused on metal mining and smelting. By 2022, the company barely produced 1 million laptops and smartphones.

Shocking Moves

Zhengzhou is feeling the pressure from Foxconn’s capacity shift, particularly with its production line in India emerging as a direct competitor. This year, some iPhone 16 models will be manufactured in India. In 2023, India started producing new iPhone 15 models upon their release, something that used to be exclusive to China.　

Foxconn has already invested US$10 billion in India, with plans for more investment in the future. According to a Caijing article, India’s production capacity is only about one-fifth of Zhengzhou’s, and its yield rates are significantly lower. Indian factories also face challenges like lack of infrastructure, immature production lines and electricity shortages. While China remains the core manufacturing hub for iPhones, India is quickly catching up. In the long run, Foxconn’s shift to India seems inevitable, Caijing concluded in the August report.　

Guo Mingxia, a smartphone industry analyst, predicted in a November 2023 report that India’s share of iPhone production would rise to 20-25 percent in 2024. In contrast, Zhengzhou’s production might shrink by 35-45 percent.　

However, an industry insider downplayed India’s progress, suggesting the country needs 15-20 years to catch up with China’s phone production. “Even when it comes to assembly, Indian companies are still in the early stages, far behind Chinese companies in terms of technology and management,” the source told NewsChina.　

But he admitted that Indian labor is already 90 percent as efficient as Chinese workers while monthly wages are around 1,000 yuan (US$141). Factory wages in China average over 3,000 yuan (US$423) a month.　

Besides competition in India, domestic manufacturers are chipping away at Foxconn’s dominance in Zhengzhou as Apple decentralizes its supply chain. In 2023, Foxconn produced 70 percent of the iPhone 15 series, while Luxshare Precision, another Apple supplier, handled 25 percent. For the iPhone 15 Pro Max flagship model, Foxconn and Luxshare Precision shared production at a 70-30 split, while Foxconn shared production of iPhone 15 Pro models with Taiwanese company Pegatron on the same 70-30 basis.　

Prior to 2020, another major Apple supplier Wistron (which had its Kunshan, Jiangsu Province plant acquired by Luxshare in 2020) only held 5-10 percent of iPhone production and never handled high-end models. In 2023, Luxshare’s three orders for the iPhone 15 marked a turning point, breaking Foxconn’s dominance of high-end production.　

With Luxshare’s growing presence, its Kunshan plant’s production surged from 33.8 million in 2021 to 75.4 million in 2023. During the first half of 2024, phone exports from Jiangsu Province, home to Luxshare, increased by 42.7 percent year-on-year, while Henan’s phone exports halved.

Drive to NEVs

In its 14th Five-Year Plan (2021- 2025), Zhengzhou government reduced its electronic information industry target from 750 billion yuan (US$107b) to 600 billion yuan (US$85.6b).　

In April 2023, Hon Hai announced plans to build a new Foxconn factory in Zhengzhou over the next five to 10 years, though it will focus on other industries. Its new focus in the city pivots toward NEVs, digital health and robotics.　

In July, Foxconn unveiled plans for a new business headquarters focused on NEVs. In January, Foxconn established its NEV arm with a registered capital of 500 million yuan (US$71.3m). Its future plans include building an NEV manufacturing and testing center, along with a solid-state battery production line.　

But this long-term strategy is too far off to alleviate the immediate pains Zhengzhou and Henan Province are experiencing. As of late July, there were only sporadic signs of construction at Foxconn’s new car manufacturing base, media reported.　

Before its transition to NEVs, Zhengzhou was a major manufacturing base for traditional automobile manufacturing, producing about 600,000 cars annually until 2019. That number began to slide starting in 2020 as NEV production surged nationwide. The turning point came in 2021 with the arrival of BYD, a leading Chinese electric vehicle producer.　

Zhengzhou signed a contract with BYD in September 2021. BYD produced its first vehicle 17 months later, officially starting production in April 2023. That year alone, BYD produced over 200,000 vehicles, accounting for over 60 percent of Zhengzhou’s total output.　

In May 2022, Henan Province set a target of 1.5 million NEVs by 2025. A month later, Zhengzhou aimed to produce over 1 million NEVs by 2025 and set an average annual growth rate of 20 percent for the industry, hoping to establish NEVs as a new pillar of its economy.　

Starting in May 2022, Zhengzhou has ramped up efforts to develop its NEV sector, attracting automakers like FAW Jiefang, I.T Box and Geely, as well as numerous suppliers along the automotive supply chain, including battery giant CATL. With over 600 auto producers and car parts suppliers, Zhengzhou is gradually creating a complete NEV industrial ecosystem.　

In the first half of 2024, Henan’s auto exports exceeded 14 billion yuan (US$1.98b), up 20 percent year-on-year, though still far behind phone exports.　

During the same period, Zhengzhou’s NEV output rose by 69.7 percent year-on-year, while production of industrial robots and lithium batteries increased by 100 percent and 44.5 percent. NEV output is expected to grow this year as more factories go into operation.　

As BYD’s largest manufacturing base, its Zhengzhou plant is expected to produce over 1 million units once fully completed. As of July, BYD employed 36,000 workers in Zhengzhou, and the workforce could reach 50,000 at full capacity. Although a fraction of Foxconn’s peak workforce of 300,000, BYD is growing rapidly. In the first half of 2024, BYD’s output was 10 times higher than in the same period of 2023, according to the Henan Automobile Association.　

In its 2024 development plan, Zhengzhou set a goal of producing over 700,000 NEVs and boosting the overall scale of its automobile industry cluster to 400 billion yuan (US$56.5b), signaling its commitment to supporting the industry. Foxconn’s focus on electric vehicles also parallels this trend.　

However, whether the NEV industry can help Zhengzhou and Henan regain their former success in foreign trade remains uncertain, especially amid the resurgence of global trade protectionism.

Job seekers visit the Foxconn booth at a job fair held in the stadium of Zhengzhou University, Zhengzhou, Henan Province, April 26, 2024 (Photo by VCG)

Robots work alongside human technicians at Foxconn’s Lighthouse Factory (recognized by the World Economic Forum’s Global Lighthouse Network for using advanced internet and intelligent technologies), Zhengzhou, Henan Province, January 21, 2023 (Photo by VCG)

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