Foxconn’s Hefty U.S. Investment Will Have Limited Impact on China, Analysts Say

(Beijing) — Taiwan manufacturing giant Foxconn’s $10 billion investment in the United States to make liquid-crystal displays (LCDs) is not a business-savvy decision and is unlikely to have a major impact on its strategy in China, analysts said on Thursday.

U.S. President Donald Trump, accompanied by Foxconn Chairman Terry Gou and several American politicians, announced at the White House on Wednesday that the company will make an “initial investment of more than $10 billion” to build a factory in the state of Wisconsin to produce LCD panels. The plant is expected to employ 3,000 workers and could eventually create up to 13,000 jobs, Trump said.

“To make such an incredible investment, Chairman Gou put his faith and confidence in the future of the American economy,” he said. “In other words, if I didn’t get elected, he definitely would not be spending $10 billion.”

Foxconn, a key supplier of Apple’s iPhones, has most of its manufacturing facilities in mainland China and hires around 1 million employees here. The company, also known as Hon Hai, began investing in the mainland in 1988 and its imports and exports accounted for 3.6% of China’s total trade last year, according to the firm’s website.

Analysts view Gou’s planned Wisconsin project mainly as an olive branch to Trump, who has taken a protectionist approach of “America First” and vowed to bring jobs back to the U.S. The decision does not make business sense and will not affect Foxconn’s investment in China, they said.

“I don’t think Gou was keen to make investments to the U.S. in the past,” Claire Wen, a Taipei-based analyst with market research firm Gartner. “His moves are more or less linked to Trump’s policy to encourage manufacturing to return to the U.S.”

A shrewd businessman, the Foxconn chief is walking a fine line balancing demands from China and the U.S., and will “not make any moves that will get him on the wrong side of powerful countries,” Wen told Caixin.

For example, Gou in December announced that Foxconn will invest 61 billion yuan ($9 billion) through a Japanese company he controls to establish a display plant in the southern Chinese city of Guangzhou. The factory is expected to start operations in 2019.

“I think Gou actually intends to create an optimal situation for negotiations (with the Chinese and U.S. governments),” Wen said, adding that the executive could use his U.S. plans to pressure Beijing to offer him more benefits such as tax breaks.

Other analysts say the profit prospects for the U.S. factory are uncertain due to high labor costs there. “Production costs in U.S. manufacturing are higher than in China and other developing countries,” said Jason Low, with consulting firm Canalys.

“In order to make investment in the country’s manufacturing industry a trend, the U.S. government has to provide more subsidies and supportive measures such as allowing technology sharing,” he said.

Xiang Ligang, founder of the telecom-industry portal cctime.com, was skeptical about the likely success of Foxconn’s U.S. plant, due to the insufficient locally available supply chain and infrastructure facilities related to LCD panel production.

“A company’s costs will spike and its competitiveness will be low if those resources are not available,” he said. “The world’s best industry chain and other facilities for the manufacturing of electronics are in China.”

Low said he was unconvinced that Foxconn’s U.S. foray will affect the company’s investment strategy in China.

“Investing in the U.S. does not mean Foxconn will scale back investment in China,” he said. “The investment decisions will depend on demand from the global electronics market, the potential of the industry and various incentives.”

Contact reporter Fran Wang (fangwang@caixin.com)