Shutdown of Foxconn’s Factories in China Threatens Apple’s Supply Chain

Taiwan’s Foxconn Technology Group, the world’s largest electronics manufacturer and Apple’s main supplier, has again suspended operations at two of its factories in Kunshan, China, after the Chinese Communist Party (CCP) implemented strict quarantine rules in parts of the country to combat the spread of the Omicron variant of the virus in March.

On April 22, Kunshan reported 23 new CCP virus cases, up from single digits the week before.

Beijing’s new zero-COVID-19 policy mandates the enforcement of harsh quarantine measures, including the forced lockdown of entire communities affected by the virus, instead of a dependence on mass vaccinations.

Millions of residents in the region are currently under virtual lockdown or house arrest since the new wave hit in March, as the number of new cases per day has risen to more than 20,000.

Kunshan, a city of 2.1 million people in the eastern coastal province of Jiangsu, is 32 miles east of the major tech hub of Shanghai, which has been under severe lockdown for weeks.

The city is home to many factories run by several Taiwanese electronics companies.

Shenzhen, the Silicon Valley of China, put its 17.5 million residents under stringent quarantine, after the CCP’s zero-COVID declaration in March.

Southern Guangdong, another tech hub, also imposed a citywide lockdown the same month.

The two Foxconn factories, located at Dianfa and Fuhong in the northern part of Kunshan, are two of four manufacturing campuses operated by the Taiwanese firm.

Foxconn first established its plant in Kunshan in 1993, after receiving permission to expand its operations to the Yangtze River Delta, which includes the major city of Shanghai, and the provinces of Jiangsu and the coastal province of Zhejiang.

Foxconn’s cumulative revenue from its factory in Kushan since 1993 has generated about $44.6 billion for the company.

All operations at the two plants have reportedly been on hold since April 20 at orders of the CCP authorities, after workers tested positive for the virus.

The tens of thousands of workers who live in the two Kunshan dormitories have been put under strict lockdown rules, according to local civil officials.

Foxconn was still able to continue operations in Shenzhen despite the lockdowns two days after it had halted operations there, by isolating its workers from the rest of society.

The company’s employees in Shenzhen were shuttled back and forth between the company-owned dormitories to the factory in order to avoid contact with non-workers from the outside world and taking regular COVID-19 tests.

The company’s “closed-loop system” was later deployed to its other manufacturing center in Dongguan.

Early last week, CCP officials in Kunshan were confident enough to give permission for 60 companies to reopen their production facilities, with the local authorities expecting to ease travel restrictions and allow further manufacturing activities to resume.

The government in Kunshan, like other cities in the region, had earlier enforced a a citywide lockdown this month over the Omicron variant and a potential spillover of the virus from Shanghai.

However, the sudden halt of Foxconn’s factory operations in Kunshan last week took workers by surprise, a major blow for the company, which hoped that its innovative “closed-loop system” would enable it to continue operations.

In an April 25 interview with Al-Jazeera, Foxconn’s acting spokesman Jimmy Huang, said the company’s operations were continuing at the company’s main campus and that it was shifting production to other locations in an effort to alleviate the firm’s weakened supply chains.

“As production has previously been deployed to backup factories, the factory’s main products are located in overseas shipping warehouses and inventory levels are still sufficient, the impact on the company’s business is limited,” said Huang.

Apple was depending on Foxconn to make up for its supply of iPhones and iPads, after two of its other Taiwanese suppliers in Kunshan, Pegatron and Compal Electronics, had suspended their operations.

The American tech giant’s supply chain in China is now facing a major crisis, as most of its key electronics suppliers in Mainland China have stopped production for now.

The CCP’s zero-COVID-19 strategy is stoking fears that it will bring down the Chinese economy, and worsen the supply chain crisis and rising inflation.

Foreign investors have been pulling their money out of Chinese markets, with some $7 billion worth of foreign owned shares in China being extracted in March.

The Chinese economy has witnessed the worst hit since the start of the 2020 pandemic, with retail sales across China tumbling 2 percent in March, down 3.5 percent from a year ago.

The unemployment rate in China has gone up since the start of the current pandemic crisis, up 5.8 percent.