Concerns about China’s evolving export laws are prompting some tech companies to take a step…literally.
One of the biggest concerns most PC vendors have about manufacturing their products in China is the possibility of China enacting more restrictive policies that could dramatically impact their businesses.
Around 2015, while on a trip to China, I heard about a new policy being formulated to introduce tighter controls on foreign production. These were things like the potential nationalization of all foreign manufacturing operations that were too sophisticated to own up to 70% of a foreign manufacturing operation.
Although this draconian scenario has not yet materialized, these scenarios made many PC companies think twice about continuing to manufacture their products in China. By 2017, this rhetoric from China had calmed down, and PC makers continued to make most of their PCs in China. At that time, China still had cheap labor and its investments in its Taiwan-based manufacturers were impossible to ignore entirely.
By 2019, however, drumbeats of more restrictive manufacturing policies against outside companies manufacturing PCs and other technology products in China resurfaced. This time I saw how many PC companies started moving some of their Chinese manufacturing to other Asian countries like Vietnam, Malaysia, Thailand, Indonesia and India.
With the uncertainty surrounding Chinese policies, which could be quite restrictive in the future, technology leaders around the world are tuned in today to China’s 20th National Congress starting October 16, 2022 to see what new rules and declarations the Communist Party will issue along the way the event.
According to CNBC- “It is the most important political event of the decade in China,” Citi analysts wrote in a note last week.
“Congress will usher in a new cycle of political economy,” says the Citi report. “In the short term, this could help reduce political uncertainty and allow Beijing to refocus on economic development.”
The National Congress is held every five years and is primarily a political event to determine the next group of leaders for the ruling party.”
During this congress we will see how much more power Chinese President Xi Jinping will receive. He is committed to enacting stricter rules for foreign manufacturers. One of the more restrictive policies we’ve heard is that China ultimately wants more control over what’s made, and more importantly, state officials could require that anything made in China be for domestic use only will be produced.
There will also be keen interest to see how the Chinese leadership will deal with its current economic downturn, which has accelerated due to Covid lockdowns and losses in all types of manufacturing jobs.
While most PC vendors manufacture some of their products outside of China, Apple, through its relationship with Foxconn, produces most of its products in China-based factories.
Apple, along with all PC and technology vendors, anticipates further changes to Chinese government regulations on manufacturing products in China for export. It’s moving fast to shift more of its production out of China.
According to Bloomberg “Apple Inc. began manufacturing its new iPhone 14 in India earlier than expected, after a surprisingly smooth start to production that cut the lag between Chinese and Indian production from months to just weeks.
The US tech giant made the announcement on Monday, weeks after unveiling the marquee device on September 7th. It had been working with Foxconn Technology Group, its key manufacturing partner, with the initial goal of assembling iPhones in Chennai about two months after the global launch, Bloomberg News reported in August.
“We are excited to manufacture the iPhone 14 in India,” Apple said in an emailed statement Monday, without discussing production timelines. A Foxconn representative declined to comment.”
Apple’s move to India has been in the works for at least a decade, but it seems Apple is moving much faster to move some of its iPhone manufacturing to India at an accelerated pace.
China’s upcoming 20th National Congress should give all PC and technology makers a clearer picture of the potential they may still have to manufacture their products in China in the near future. But it’s now clear that the possibility of manufacturing tech products in China is becoming increasingly unrealistic. Over time, China is expected to return to a more strict, protection-oriented economy, making it much more difficult for all technology product makers to continue producing products in China.
