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China's crackdown on Foxconn, one of Apple's biggest suppliers, shows Beijing is willing to sacrifice its economy for political power

Huileng Tan   

China's crackdown on Foxconn, one of Apple's biggest suppliers, shows Beijing is willing to sacrifice its economy for political power
  • China has launched investigations into Taiwan's Foxconn over its land use in mainland China.
  • Experts say the move against the key Apple supplier may be politically motivated.

Even Foxconn, China's largest private-sector employer, isn't immune from Beijing's whims.

Foxconn, also known as Hon Hai Precision Industry, is a huge contributor to China's employment and economic growth. It employs 800,000 people in China. Thanks to the company's economic importance, it has thus far enjoyed tax breaks and favorable land-use levies in China.

But over the weekend, Chinese media reported that Foxconn — the key Apple iPhone supplier based in Taiwan — is under tax audits and investigations into its land use.

The timing of the government's announcement is significant: It comes just about 11 weeks before Taiwan's presidential elections, which are slated to occur in January. And Terry Gou, the billionaire founder of Foxconn, is one of the candidates eyeing the presidency.

In an exchange filing on Sunday, Foxconn said it would cooperate with the investigation.

'All the hallmarks of a political crackdown'

Given that the inquiries into Foxconn came just months before Taiwan's elections, experts on Chinese politics have said the move is likely politically motivated.

Beijing claims Taiwan as China's territory, but the island is self-ruled. The current Taiwanese government is the Democratic Progressive Party, or DPP, which is seen as independence-leaning — a position that is unacceptable to China.

Beijing doesn't appear to have signaled its preferred candidate for Taiwan's top job this time. But Gou's participation in the presidential election could split opposition votes and help DPP win the race, analysts say. Gou is joining a crowded race with three other candidates so far: frontrunner William Lai from the ruling DPP, whom Beijing views as a separatist, KMT's Hou Yu-ih, and former Taipei mayor Ko Wen-je from the Taiwan People's Party.

Anna Ashton, a China expert at the risk consultancy Eurasia Group, told Gzero Media that Beijing is likely concerned that Gou is "dividing the KMT voter base and making it less likely that anyone other than Lai can win." KMT, or Kuomintang, is Taiwan's main opposition party. KMT traditionally leans toward a close relationship with China — and Beijing has been advocating a "peaceful reunification" with the self-ruled island.

And as Gabriel Wildau, the managing director at Teneo Holdings, a New York-based advisory firm, told Bloomberg on Monday, "The actions against Foxconn have all the hallmarks of a political crackdown. This kind of concerted action in multiple provinces would almost certainly need to be approved by top party leaders."

However, on Wednesday, Zhu Fenglian, a spokesperson for Beijing's Taiwan Affairs Office, said at a press briefing that mainland authorities conduct compliance investigations on "all enterprises equally" in accordance with the law. She also called on Taiwanese firms in the country to assume "social responsibilities" while reaping profits from their businesses on the mainland.

Sacrificing the economy for political gains

China's investigation into Foxconn could also be Beijing's expression of displeasure over the company's move to expand some of its supply chains outside China, Dongshu Liu, an assistant professor specializing in Chinese politics at the City University of Hong Kong, told Insider.

And since the latest actions against Foxconn and WPP came on the back of China's crackdown on foreign businesses in the country this year — with raids of the offices of the WPP-owned media agency GroupM over the weekend — external investors are spooked, he added.

Given how important Foxconn is to China's economy, it's a sign that Beijing is willing to make some sacrifices in its economy for political reasons, Liu said.

"In the past, it was thought that because China wants to have sustained economic growth, it was willing to compromise and wouldn't do something that's politically damaging. But if you think about the last few years, they've been sending terrifying signals, and they know that," Liu said, citing COVID-19 lockdowns, as well as crackdowns on tech and the private-tutoring industries, which have battered growth.

China's economy is in tatters

China's economy has struggled to recover after nearly three years of on-off COVID-19 lockdowns.

China's gross domestic product grew by only 3% in 2022 — the worst growth in nearly half a century. While the country's economy grew at a better-than-expected rate of 4.9% in the third quarter year over year, it faces significant headwinds from a property crisis and record-high youth unemployment rates.

Insider's Linette Lopez reported recently that China's leader, Xi Jinping, is concerned with power and national security more than the economy and not rushing to rescue embattled property developers and beaten-down private enterprises.

"This isn't about the economy anymore. It's all about advanced technology and weaponry," Lee Miller, the founder of the economic surveyor China Beige Book, told Lopez.

Liu echoed this sentiment, saying Xi's administration has its own agenda which placed political priorities higher than economic goals.

The Chinese government is continuing to support the private sector and encourage foreign investment, Liu Pengyu, a spokesperson for China's embassy in Washington, DC told Insider.

"It is also worth mentioning that businesses or individuals need to abide by local laws of their host countries. This holds true anywhere in this world," the spokesperson added. "China is a law-based country and rule of law is an important element of a sound business environment. "

A spokesperson for Gou declined to comment to Insider beyond saying that he no longer held any management or board positions at Foxconn.

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