In the suburbs of Zhuhai, a city of 1.8 million just north of Macau and due west of Hong Kong, US company Flex was making smartphones for Chinese telecoms giant Huawei until the trade war intervened.
Production lines started slowing down in May, after Washington banned US companies from selling parts and components to Huawei. The relationship between Flex, one of the world’s largest contract electronics manufacturers, and Huawei, one of its biggest clients, rapidly deteriorated.
Huawei claimed that Flex kept 700 million yuan (US$97.7 million) worth of Huawei’s materials and equipment for more than a month after the sales ban. According to a report from Reuters, Huawei was able to retrieve some of these materials via third parties, but at extra cost.
After Huawei pulled its orders, Flex had to close down its Huawei-dedicated production. This forced Flex to let tens of thousands of workers go in its Zhuhai Industrial Park, where it maintains its largest production base in China, between July and August. On an earnings call on July 31, Flex’s CEO, Revathi Advaithi, said that “we are scaling down our Huawei-dedicated operations in China”.
Flex runs two large manufacturing campuses in Zhuhai, which is connected to Hong Kong and Macau by the world’s longest sea bridge, and which is earmarked as a manufacturing hub in China’s Greater Bay Area plans.
Flex is the largest foreign company in Zhuhai, with its first factory built in 1997 with total investment of US$30 million. It has played a major role in the local economy, with Flex's exports contributing to at least a third of Zhuhai’s overseas sales, up from 6.6 per cent in 2001, according to Zhuhai government data.
On a recent working day, however, Flex’s south campus was eerily quiet when the South China Morning Post visited during lunch hour. The sudden decline in the workforce has also hit retail sales in a marketplace across the street, where many shops have been forced to hold clearance sales.
A female recruiter sitting in front of the south campus’s front gate said she was no longer hiring for the facility after Huawei’s orders stopped. The total staff at the south campus has been downsized from around 20,000 to a skeleton crew of a few dozen, while staffing numbers at the north campus – where the company produces other consumer gadgets – has remained steady at around 10,000, according to information from a dozen former Flex workers and local recruitment agencies.
In a public notice outside its north campus, Flex still says its Zhuhai base covers around 700,000 square metres and employs 50,000 people in total.
However, the job cuts have piled pressure on the local government in Zhuhai, a city in the south of China’s production powerhouse Guangdong, where the manufacturing sector accounts for more than half of local employment.
In the first half of this year, the number of new jobs available in Zhuhai fell 4.6 per cent from a year earlier to 529,000, with manufacturing jobs dropping faster, by 8 per cent to 280,000, according to the Zhuhai Human Resources and Social Security Bureau. As China’s economy slows, local officials across the country are trying to follow a directive from China’s leadership in Beijing to keep employment stable to mitigate social unrest.
Because of the fallout with Huawei, revenues from Nasdaq-listed Flex’s Communications and Enterprise Compute division, which mainly manufactures telecoms equipment, dropped 5 per cent from a year earlier to US$1.9 billion in its April to June fiscal quarter, according to its public filings.
The company expects the division’s revenue to fall an additional 5 to 10 per cent in the July to September quarter due to falling demand in China. On her July earnings call, Advaithi said that the geopolitical uncertainty was beyond the company’s control, but that China remained a very important production centre and market for its products.
By mid-August, Flex had completed restructuring staff in its south campus, offering workers the option of job transfers to the north campus – about 15 minutes’ walk away – paid leave with basic salary until mid-August, or payoffs based on how long they had worked for the firm.
One former Flex employee, who worked on Huawei cellphone assembly for three months, said he received a payoff of 12,000 yuan (US$1,675), roughly four times the average monthly salary for a new worker at the firm.
The south campus exodus also led to a temporary labour shortage in the north campus, which manufactures and assembles goods such as printers, electronic cables, and e-cigarettes. The north campus was looking to fill the gap with around 2,500 staff to work 60-hour weeks, according to recruiters for Flex, with about two-thirds of the vacancies already filled.
The jobs on offer in the north campus have a basic salary ranging from 2,000 yuan (US$279.30) to 2,250 yuan, which will increase by 150 yuan a month starting from October 1. A worker can earn between 4,500 and 5,500 yuan a month including overtime pay and allowances, according to a job post from Flex. The packages are roughly the same as those for making Huawei smartphones in Flex plants.
Contract agencies can be found in abundance near Flex’s two complexes in Zhuhai. Most of the jobs on offer pay an hourly rate, with each agency normally taking a 8.3 per cent cut of employees’ wages. In the past, Flex had offered 22 yuan (US$3.07) per hour, according Jin Bang, a recruiter for contract labour in the area.
Hourly jobs have flexibility. Many jobseekers in the market are young people. It’s impossible to expect them to stay in one factory for a year or two
Jin Bang, Zhuhai recruiter
By way of comparison, on the day the Post visited Flex’s Zhuhai plants, competitor manufacturer Foxconn was offering an hourly wage of between 20 to 28 yuan (up to US$3.07 per hour) in its Longhua compound in Shenzhen, where it makes Huawei smartphones.
Unlike a formal employee which signs directly with Flex, an hourly worker signs their contract with a recruiting agency, from whom they can also borrow money for monthly expenditures. But they do not receive the social security or pension fund contributions that Flex pays its formal employees.
“Hourly jobs have flexibility. Many jobseekers in the market are young people. It’s impossible to expect them to stay in one factory for a year or two. It’s very different from previous generations born in the 1980s or 90s,” said Jin, while pitching a 15 yuan per hour post to a former Flex employee nearby, which the Post overheard.
The employee took a buyout but had to wait for at least one month to apply for other jobs at Flex.
“Many of those who took the buyouts have stayed around,” Jin said. “Hopefully they will join the north campus later.”
More from South China Morning Post:
- China’s industrial profits bounce back in July, but long-term view remains negative amid trade war escalation
- US-China trade war escalation seen moving global recession risk closer to tipping point
- China extends pilot free trade zones to strategic border regions
- China ‘resolutely opposes escalation of the US trade war’, prefers ‘calm negotiations’, vice-premier says
- China calls Donald Trump’s trade war escalation a ‘strategic mistake’
This article US electronics manufacturer faces life after Huawei as trade war sours relations with Chinese tech giant first appeared on South China Morning Post