Editors note: The US is decoupling from China. The rest of the world is beginning to follow.
In its heyday, Samsung’s complex in Huizhou in the northern part of the Pearl River Delta was the South Korean company’s largest Chinese factory, producing one in five smartphones sold in China in 2011.
[He Huifeng | June 15, 2019 | SCMP]
Now, the small shops and suppliers that surround the vast complex – the focal point for the community for 27 years – have fallen silent and a notice posted on the gate and dated February 28 tells passers-by that recruitment has been suspended.
“Actually, since February after the Chinese Lunar New Year, many – and a growing number – of residents of the [nearby] town of Chenjiang, from businesspeople, hawkers, workers, landlords to security guards at nearby electronics factories, have heard and spread the rumours that Samsung will shut down a large part of its production capacity in the coming months,” said Zhong Ming, a local resident in his 40s who has witnessed the rise of the Samsung factory over the last three decades.
Huizhou Samsung Electronics is Samsung’s last smartphone factory in China after the company closed its facility in Tianjin in December, having already ceased network equipment production earlier in 2018 at its factory in Shenzhen.
Workers in Huizhou talk of colleagues having already accepted voluntary redundancy, while other local residents, workers and suppliers have almost taken it for granted that the factory will close.
“Street lamps here were decorated with Samsung’s eye-catching billboards. Now they are all gone,” said Steve Huang, an engineer who has worked at the plant for 17 years.
Huang is understandably concerned about his own job security, as he says the number of employees at the factory has dropped to about 4,000 from about 9,000 in 2013, when Samsung ranked No 1 in China with 20 per cent of the smartphone market.
Last year, its market share dropped to just 1 per cent in the face of stiff competition from Chinese rivals including Huawei, Xiaomi and Oppo.
The factory was born on August 24, 1992, four days before the establishment of diplomatic relations between China and South Korea, as the electronics giant signed a joint venture contract with the Huizhou city government.
A year later, the company with registered capital of US$32 million began operation, and since then has produced the company’s latest and most popular consumer electronics, from stereos in 1990s, MP3 players in early 2000s and smartphones since 2007.
In 2011, when Samsung’s smartphone sales ranked No 1 in the world, its two factories in Huizhou and Tianjin produced and exported 70.14 million and 55.64 million mobile phones, respectively.
“Last month, I heard that a few hundred workers got compensation of between about 10,000 (US$1,400) and over 100,000 yuan (US$14,400) [depending on years of service] and left Samsung,” said a local landlord.
“The rent for a single room has dropped from 500 (US$72) yuan to only 200 or 300 yuan but they are still vacant.”
Samsung China declined to comment despite reports in both Chinese and South Korean media last week that the company was cutting production and laying off workers at the Huizhou factory amid slowing smartphone sales as it continues to shift production to lower-cost locations in Asia.
In the first quarter of 2019, exports of Samsung smartphones from Huizhou dropped 20.1 per cent from the same period last year, according to Chinese customs data.
The demise of Samsung China also raises wider concerns over China’s economic future and the country’s role in the global value chain, especially at a time when the United States is waging a trade war against China.
And while Samsung has to take a good part of the blame for losing smartphone market share in China, as its marketing and services failed to keep up with the local Chinese brands, the fact that the company is closing its factories in China but expanding its production in Vietnam and India should be a cause for concern.
The shift of production from China to Southeast Asia, India and even Africa, especially for labour-intensive manufacturing and relatively low-end assembly, has been at least a decade in the making due to rising labour and rental costs, high taxes and the economic slowdown.
But the process has shown clear signs of acceleration since US President Donald Trump started to impose tariffs on Chinese products nearly a year ago.
Foxconn, the largest assembler of iPhones and iPads, employs in the region of a million workers in China. It said this week that it has sufficient capacity outside China to accommodate all production of Apple products bound for the US, if needed.
That announcement, plus Samsung’s plans to leave China and news that a number of US tech companies like Cisco and Oracle plan to cut back on production in China, could have serious implications for China’s domestic economic and employment stability as well as its position in global supply chains, according to analysts.
“Samsung is the world’s leading manufacturing enterprise. If its production is cut back or leaves the mainland completely, at least 100 factories [of suppliers] in Guangdong are going to close down.,” said Liu Kaiming, head of the Institute of Contemporary Observation, which supervises working conditions in hundreds of factories in China.
“They can’t make it without Samsung’s Huizhou factory.”
But the usual trade flows, in which China imports components from South Korea, Japan and Taiwan to assemble and then re-export products to the European and US markets, are already ebbing.
According to China’s customs data, imports from South Korea dropped 13.1 per cent in the first five months of 2019, while its imports from Japan dropped 6.7 per cent and from Taiwan by 6.9 per cent.
Bern Optical, a Hong Kong-invested factory in Huizhou that provides cover glass for Apple and Samsung products, has already been forced to cut 8,000 workers since November due to reduced orders.
Shenzhen-listed Janus, a Dongguan-based precision components maker that receives subsidies from the Guangdong government, reported a 14.25 per cent year-on-year decline sales last year resulting in a net loss of 2.86 billion yuan (US$413 million).
It attributes the huge deficit to Samsung, the company’s largest client, which stopped ordering from Janus in the fourth quarter last year, resulting in a decline in orders for consumer electronics precision parts worth 2.408 billion yuan (US$348 million).
Rather than manufacture in China, Samsung opened the world’s largest mobile phone manufacturing facility on the outskirts of the Indian capital of New Delhi last year.
The factory will eventually have the capacity to assemble 120 million smartphones a year, making everything from low-end handsets that cost less than US$100 to its flagship models, according to the company.
In response, the Chinese government has been trying to address complaints by foreign manufacturers by promising that they will be welcomed and protected in China.
Beijing has already rushed through a foreign investment law this year to provide legal protection for foreign intellectual property and prohibiting forced technology transfers.
It is also rolling out the red carpet for big-name investors such as electric carmaker Tesla.
Its new Shanghai factory, supported with generous lending by Chinese banks and exclusively owned by Tesla, is expected to start producing Model 3 car by the end of 2019, just one year after construction began.
The latest Chinese official data showed foreign direct investment inflows have been largely stable in the first five months this year, posting a rise of 3.7 per cent to US$55 billion. However, this is down from double-digit percentile growth last year.
In the face of changing global supply chains, Wang Jisi, a Sino-US relations expert, wrote in the state-backed Global Times on Thursday that China must avoid falling into the trap of “decoupling” from the US and the rest of the world.
“Some Americans want to see decoupling of the two countries in terms of trade and technology, but China should insist on working with other countries, including the US, in the fields of trade and technology,” Wang said.
Early this month, China’s technology industry ministry granted licenses for 5G wireless telecommunication to China Telecom, China Mobile, China Unicom and China Broadcasting Network Corporation, signalling major new investments in the world’s largest mobile market amid an accelerating technology war with the US.
“It’s only theoretically feasible … but China’s development of next generation of smartphones and next-generation communications have to be connected and compatible with the world,” said James Yan, research director at Hong Kong-based Counterpoint Technology, adding that this makes decoupling impossible.
However, for those in Chenjiang near the Samsung factory, the ship has already sailed.
“I will probably work here till the day when Samsung completely moves out of China,” said Huang.
Read the original article.
