Foxconn, a tale of slashed salaries, disappearing benefits and mass resignations as iPhone orders dry up

It is a normal Saturday in Zhengzhou, the capital of central China’s Henan province. The sky over the Foxconn factory complex is obscured with a choking smog. Under the hazy sunset, hordes of workers have started to walk out of the production facility. The crowd thins out quickly.

But working conditions inside the world’s largest iPhone assembly plant are not normal, as weaker demand for the mobile phones assembled inside the vast 1.4 million square metre (15 million square feet) facility has led to lower salaries and reduced benefits from Apple’s largest supplier.

The shuttle bus service to the workers’ gloomy dormitory compound has been cancelled, forcing some to walk for up to 40 minutes to get to their rooms.

The cancellation of the shuttle service is routine during the Lunar New Year holiday, but normally it resumes when production picked up again. But not this year, as the service was cancelled earlier this month, long before.

Small but important perks have also been scaled back. A free laundry service was cut at the beginning of the year for the first time, with employees now having to pay 7 yuan (US$1) to wash a load of laundry, while dry cleaning an overcoat costs 18 yuan (US$2.7) of their 2,000 yuan (US$299) to 3,000 yuan monthly income.

The Zhengzhou facility, one of Foxconn’s 45 factories scattered throughout China, began operations in 2010 and is equipped with its own group of customs officials at the factory gates to speed up the process of transporting finished iPhones to the nearby airport for export.

The special trade zone was created to allow goods from overseas to be imported without paying duties, while manufacturing and trade conducted inside receives exemptions from value added and sales taxes.

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More than 100,000 migrant workers live and work inside the special trade zone, which accommodated around 300,000 workers at its height at the end of 2014.

However, the sharp drop in iPhone sales since the middle of last year, much of it due to weaker Chinese demand, has cast a shadow over the manufacturing giant.

Around two dozen workers told the South China Morning Post that their salaries had been cut at the end of last year, an unprecedented step in their experience.

Output from Foxconn factories, including smart phones assembled for Apple and other vendors, had been the biggest contributor to Henan’s strong export performance.

Chinese Ministry of Commerce data show Henan’s mobile phone exports – most assembled at Foxconn facilities – were valued at 211.6 billion yuan (US$31.6 billion) in 2018, accounting for 38.4 per cent of the province’s exports.

Foxconn’s latest shipment data is not available, but information released by Zhengzhou’s customs administration show that Henan’s mobile phone exports plunged 23.7 per cent in January compared to a year earlier.

Apple CEO Tim Cook announced in January a 5 per cent fall in the company’s fourth quarter revenue, attributed to weaker demand for new iPhones in China and fewer phone upgrades in the rest of the world. Apple’s share price has dropped around 25 per cent since its October peak.

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Foxconn Industrial Internet, Foxconn’s smart factory and cloud computing division, was listed on the Shanghai Stock Exchange in 2018, and its prospectus said that 20 per cent to 30 per cent of its current revenue is from a “well-known US brand”, an obvious reference to Apple.

A Foxconn worker, who declined to give his name, told the Post that the peak production season last year lasted only about 20 days, which cut his salary from around 4,000 yuan (US$598) in October to 3,000 yuan in November.

August is usually the start of the peak season, one month before Apple launches its newest generation of iPhones, and the increase in production usually lasts for four to five months.

“In September, our line supervisor told us that Apple added a new order for three million iPhone 8 Plus [units]. It only took us about 20 days to finish the production because we worked 18 hours a day in two shifts, including weekends. The peak season didn’t last long at all,” he said.

The basic salary for a worker at the Zhengzhou facility is 2,100 yuan (US$314) per month, falling to around 1,500 yuan after tax, pensions and other mandatory deductions.

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The average salary for a worker in the city of Zhengzhou in 2018 was 6,929 yuan (US$1,035) per month.

Another Foxconn worker, who gave her first name as Haixia, joined the company in 2015 and on average took one day off every two weeks during the peak season compared to three or four days at other times.

She was also required to recruit one worker every week during the peak season, otherwise she would not be allowed to work overtime.

“In 2017, we were churning out iPhone 8s. I was thrilled that I could work 11 hours every day and didn’t take any leave on weekends. Supervisors always demanded more from us, they even asked us to hurry up when we went for water,” she said. But that changed this year, and she had not been asked to recruit new workers since October.

According to Bloomberg, Foxconn plans to slash production costs by 20 billion yuan (US$3 billion) in 2019 with a “very difficult and competitive” year expected.

Data show Foxconn’s expenditure in 2018 was around 46.2 billion yuan (US$6.9 billion), meaning its budget for 2019 would be cut almost in half.

The wooing of Foxconn

Henan’s efforts to lure Foxconn to Zhengzhou were nothing short of Herculean, with official documents showing that as early as 2007, a team led by then mayor Zhao Jiancai was formed with the sole purpose of attracting the company to the province.

Liu Zhe, the member of China’s political advisory legislative body representing the province, told the Post that Henan had been pushing to build a modern airport economic zone in Zhengzhou since 2007 so that it could escape its label as a Chinese “backwater”, but was never able to push it through.

“The State Council would not allow us to build an airport economic zone because we didn’t have enough cargo traffic, so we began to covet Foxconn,” he said.

The Henan government mobilised all its available resources to accommodate Foxconn, Liu said.

“Foxconn didn’t spend a single penny for its employee dormitory – the government got the real estate developer to construct the dorms and workers paid rent. Each city [in Henan] was assigned an allotment of workers that it had to recruit for Foxconn. For example, Zhengzhou was required to find 80,000 workers for the facility,” he said.

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Zhengzhou’s tax subsidy offer – no corporate and value-added taxes payable for the first five years of production, with the normal tax rate then cut in half for the next five years – ultimately convinced Foxconn to locate there.

Followed the signing of a formal agreement in 2010, a new city was built for Foxconn’s facility with hospitals, undergrounds, international schools and commercial properties quickly rising from what had previously been farmland.

Hundreds of thousands of migrant workers from Henan and other provinces flocked to the new city, and in 2011, Zhengzhou broke into the top 20 Chinese cities in terms of gross domestic product for the first time, according to the Dahe Daily, a local newspaper affiliated with the Communist Party-run Henan Daily.

But the good times did not last.

“It’s like we put all our eggs in one basket. Henan relies too much on Foxconn for exports. When its orders decreased, both employment and exports were affected,” Liu added.

“The government was aware of the risks and has been talking about optimising [the province’s] industry structure, but so far we’ve hardly seen any progress.

“It’s been very difficult for Henan to attract high-end industries to [Zhengzhou’s] airport economic zone, so it’s been difficult for [the province] to fend off economic risks.”

Rumours surfaced that Foxconn had axed 50,000 seasonal workers after October, but most workers resigned due to a lack of overtime opportunities, resulting in queues forming every day to complete their exit paperwork.

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The turnover rate at the Foxconn plant has always been high, but a dozen workers told the Post that it has been even higher since the end of last year.

Foxconn did not respond when contacted by the Post for comment.

Wang Yuanhong, a worker who joined Foxconn in August 2016, said they would normally have more than 140 workers for each production line during peak season, but now there are fewer than 30.

He said some workers from the Zhengzhou plant have been forced to relocate to Foxconn’s remote Tianyuan facility in Shanxi province, around 400km north, which currently accommodates more than 60,000 workers.

Another worker, who declined to give his name, said that activity on the company app which allows staff to check payroll and job openings had dropped to around 110,000 active users from 150,000 on a typical day a year ago.

Due to the high resignation rate, a Foxconn recruiter told the Post the recruitment unit was required to find 50,000 new workers in the next two months.

Current Foxconn employees are rewarded with a 1,000 yuan (US$149) bonus for each new worker they recruit.

About two weeks ago, Taiwan Central News Agency – citing Chinese media – reported that the Zhengzhou facility had received orders from Huawei and the facility would recruit 50,000 workers.

Huawei had no comment when contacted by the Post about the report.

But Wang said: “Nobody has confirmed anything to us, but the truth is, my salary is decreasing.”

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