Apple’s Reliance on China Grows Perilous With Chaos in iPhone City

(Bloomberg Businessweek) -- Xiao Han was just wrapping up the weeklong quarantine that marked the beginning of his latest stint working at the sprawling manufacturing complex in Zhengzhou, China, known as iPhone City when violence erupted there in late November. A large part of the 200,000-person workforce had already spent weeks living in forced isolation in trash-filled dormitories, subsisting on meager rations because management wanted to keep churning out Apple Inc. devices while squelching a Covid-19 outbreak. On Nov. 23 hundreds of workers, angry to learn they might not get the wages they’d been promised unless they kept at their jobs throughout the Spring Festival and into mid-March, pushed past the security staff guarding their living quarters, setting off a physical confrontation with riot police..“It was total chaos,” says Xiao, who adds that some of his co-workers were injured in the clash. “I’d never expected things could go this bad.”.Xiao describes a situation that had grown intolerable even before the violence. The 30-year-old had helped make iPhones on Chinese assembly lines for more than a decade. In October he was part of a wave of workers who abandoned iPhone City, the world’s largest iPhone assembly complex, in response to unsanitary and deteriorating conditions. Then, too, workers clashed with guards over food shortages and living conditions. Workers gave up coveted jobs and, in one case, fled on foot and walked home 25 miles. But Xiao returned in mid November, lured by special bonuses intended to convince exhausted workers that things were improving..The violence that peaked on Nov. 23 showed how inadequate that effort has been, while also exposing the increasing futility of China’s Covid strategy. Throughout the pandemic, the Chinese Communist Party has shown a willingness to go to extremes in its efforts to combat Covid. It pushed companies such as Foxconn Technology Group and Tesla Inc. to cut off their facilities from the outside world, then continue operating them as “closed-loop systems.”.Taiwan’s Foxconn, Apple's main manufacturing partner, operates iPhone City independently. It has acknowledged that it has made mistakes in managing the employees, while blaming local officials for unpredictable policies that made meal delivery and maintenance almost impossible, according to a person familiar with the company who asked not to be named discussing private matters. Local government authorities and representatives for Foxconn didn’t respond to requests for comment. .Foxconn’s troubles have drawn the most attention because of the company’s prominence and size. But its struggles suggest that others may be having even more trouble operating within the parameters of China’s policies. “You see cases like Foxconn, and every company is now asking themselves, ‘Will that happen to me?’” says Alicia Garcia Herrero, chief Asia Pacific economist at Natixis. “Any company that depends on manufacturing has to consider alternatives. It will be costly, but it will be less costly than only relying on China and then China doesn’t open up.”.Herrero says China’s economy could still take a year to 18 months to open up, and that it’s vital that the country’s government communicate clearly that it has a plan to recover. In her view, China’s description of its plans so far have been muddled, running the risk that businesses will lose confidence and accelerate plans to develop manufacturing capabilities elsewhere. “Beijing can’t take for granted that companies will keep their manufacturing in the country,” she says. .The Zhengzhou plant produces about 80% of the latest iPhone 14 models, making its continued operation critical for Apple, which warned this month that shipments of its newest iPhones will be lower than expected going into the peak holiday season. In a worst-case scenario, Morgan Stanley said, it’s possible no more iPhones will be shipped from the site this year.A spokesperson for Apple said in a statement that the company had staff members at Zhengzhou facility and was “reviewing the situation and working closely with Foxconn to ensure that their employees’ concerns are addressed.” .Tim Cook, who championed the development of Apple’s China supply chain before he took over as chief executive officer from Steve Jobs in 2011, is developing alternatives. Assembly partners such as Foxconn are making more iPhone 14 models in India than any previous generation and are beginning to use the country as an export base. Foxconn is also expanding in Vietnam and Thailand. That’s a sign of how Chinese President Xi Jinping’s Covid policies are threatening China’s economic growth..“It’s very telling that a company like Foxconn is already moving into other countries,” Herrero says..China Locks Down Area Around Largest IPhone Factory" />Xiao arrived at iPhone City in July, renting a room of a dozen square meters (about 130 square feet) for 350 yuan ($50) a month in a nearby town. The space was cheap because of its location — Xiao had to walk more than 40 minutes to get to work. His job was simple, peeling protective plastic from display components that would be used on iPhones and other devices. He’s helped make every version from the iPhone 5 to the iPhone 14, laboring 10 hours a day as production cranked up for a new model.In early October, Xiao heard rumors about Covid infections at the campus. Soon after, Foxconn began asking workers to take designated commuting routes every day and stop any private gatherings, according to company announcements and workers inside the campus. Yellow plastic barriers about 2 meters tall were set up along roads to create lanes for workers to commute between dorms and the factory, but the restrictions were often violated. Some of Xiao’s colleagues climbed around the barriers to go into a town neighboring the compound.Foxconn didn’t say how widely Covid had spread into the compound, where groups of workers often share cramped living quarters. But on Oct. 19, it closed its worker cafeterias on orders from local authorities, according to one person who was there, who asked not to be identified because of the matter’s sensitivity. That forced the company to quickly find another way to feed its workers.This immediately led to problems. Foxconn simply didn’t have the staff to prepare and deliver food boxes multiple times a day. So meals were mostly given out as workers left the factory, with the intention that they’d eat in their dorm rooms. The cooked food often ran out, leaving many with only bread and boxed milk. Those who didn’t go into the factory—because they were sick or quarantined in their rooms—at times didn’t get anything, according to people who were at the complex at the time. The quality of the food was poor, consisting of rice, shredded potato and fried bean sprouts. Xiao says the boxes he got smelled, and the dishes were commonly covered with a gooey substance. Many workers cooked instant noodles instead. They took to posting photos of the company meals on social media. Zeng Guang, a 21-year-old who polished metal cases at the factory, says he got stuck in his dorm room without food for a day after being categorized as having had close contact with someone who had covid. That night, he says, he grew so hungry he went down to his building’s entrance to demand that the guards give him food. “They were so afraid,” he says, “as if I was wielding a knife.”.The daily Covid testing also proved to be flawed. As many as 20 workers’ throat swabs were put into one tube to speed testing and lower costs. If the results came back positive, all the workers whose samples were in that one tube were put into isolation for further testing. Those who worked on the same production line with someone who tested positive were also immediately removed from their duties and put into quarantine. The number of potential patients surged by the hour, and the number of Covid-free workers who could go to the factory dwindled rapidly.Zeng was put into isolation three times in one week, he says, even though he ultimately never had Covid.In some dormitories, trash piled up for weeks because no one was allowed to leave the building. Covid-free workers nicknamed colleagues who got Covid “sheep” because the word’s pronunciation is the same as “positive” in Mandarin. The emoji for sheep was also used to represent positive cases on social media to evade censorship from Chinese social media platforms that were deleting posts related to tensions at iPhone City.With a growing number of people forced into isolation, rumors and misinformation started to spread. A video clip claiming that eight female workers died inside a dorm room went viral among workers and on Chinese social media, prompting Foxconn to issue a denial. Fact-checking organizations later determined that the rumors were untrue. Around Oct. 25, the village where Xiao was staying was put under lockdown. He and other workers ignored the rules, zigzagging along small paths and climbing barriers to get to the factory. He felt he had no choice. “You have to work as long as you are not tested positive,” he says. “The company automatically marks those who missed three shifts in a row as quitting, which left me no option.”One night, some of his neighbors couldn’t navigate their way back to the village. They ended up sleeping in an alley outside a building housing a production line where $1,000 iPhones are made.The breaking point for many workers came on Oct. 28, when Foxconn announced strict measures to enforce a tighter closed-loop system. The company asked Xiao to move into dormitories it had set up for workers in surrounding areas, but he worried about catching Covid because the facilities included people who had tested positive. He thought it was unsafe.Meanwhile, the situation in his own tiny room turned untenable. The restaurants in his village all closed. The price for a head of cabbage passed 30 yuan, about 10 times the cost in Beijing.As workers fled, Foxconn struggled to hold on to employees. It raised hourly pay by as much as 36%, to about 38 yuan ($5.20) an hour, for key positions.Zhengzhou’s policies undercut the company’s efforts. On Nov. 2 the local government ordered a seven-day lockdown of the area around Foxconn’s main plant. It dispatched 2,000 people from across Henan province to pick up the garbage at Foxconn and sterilize the campus.One night, just after 7 p.m., Xiao’s landlord told him it was his last opportunity to flee. He quickly packed his belongings and hopped into a small Volkswagen sedan with two co-workers. Guards at health checkpoints along the highway wouldn’t approach the car after learning the people inside were coming from Foxconn, which made the trip home a bit easier. Back in his hometown, Xiao got increasingly frantic calls from local government officials, offering special bonuses if he would return to iPhone City. He “bowed to life” and headed back to the Apple plant in late November.But Xiao says he and others were stunned to soon find out Foxconn wouldn’t hand over a promised extra 30 yuan in hourly pay unless they kept at their jobs until mid-March. Foxconn told workers it was in keeping with the contract, but many felt betrayed regardless. Protests started late on Nov. 22, and violence erupted after midnight when angry laborers took to the street. Some surrounded a police vehicle and clashed with security personnel in white protective suits. Workers stormed into meeting rooms to plead with Foxconn managers not to mix them with colleagues who had tested positive. “You’re sending us to death,” one worker shouted at a beleaguered boss.Foxconn has since dangled a $1,400 severance payment to any who choose to depart, seeking to defuse the tension and ease out disgruntled workers. About 20,000 have accepted that offer, Reuters reported on Friday, citing Foxconn sources. The company is now once more firing up recruitment to replace exiting staff, much as it had when thousands first fled its campus -- but that overall effort is in jeopardy as Chinese Covid cases soar to record highs and officials struggle to contain the outbreak in cities such as Zhengzhou.Following the riot, Xiao started packing up again. He says he’ll stay in Zhengzhou to look for a job somewhere else. “Foxconn is not the only place that’s hiring,” he says. --With assistance from , and .(Updates with record Covid cases and departures in the penultimate paragraph)More stories like this are available on bloomberg.com©2022 Bloomberg L.P.

Apple’s Reliance on China Grows Perilous With Chaos in iPhone City

A recent escalation at one of Foxconn’s primary manufacturing facilities shows how grim conditions have become under China’s Covid Zero policy.

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