Local officials and workers in China’s Guangdong and Jiangsu provinces may have to brace for lost revenue and jobs as Korean tech giant Samsung has reportedly decided to wind up its last production lines and leave the country for good.
There have been reports that Samsung’s factory in Huizhou city in Guangdong – where some of its best-selling handsets like the Galaxy smartphone series were assembled – will shut down, following similar closures in Shenzhen and Tianjin in northern China.
The Huizhou base kept the local economy ticking during its heyday as it churned out electronic products for Chinese buyers and for export to the US and Europe. But rumors started to swirl right after the Chinese New Year break in February that the factory would lay off workers soon.
The backdrop is that the protracted US-China trade war has started to bite and domestic rivals like Huawei, Oppo and Xiaomi have been chipping away at Samsung’s market share.
Statistics published by Huizhou’s municipal government give an insight into the impact of Samsung’s decision to relocate their factory: the city’s local fiscal revenue grew by a mere 2.8% in 2018, down from the 10% level a year earlier.
And in a related report, the government has vowed to formulate supportive measures to ensure that overall exports will not contract this year.
Besides Huizhou, Samsung used to run a facility in Tianjin, a production base for network equipment in Shenzhen and also outsource the assembly of other gadgets to factories in Jiangsu province.
In 2011, when Samsung’s smartphone sales ranked No. 1 across the globe for the first time, its two factories in Huizhou and Tianjin produced and exported more than 70 million and 55 million mobile phones, respectively, according to the South China Morning Post and Korean papers.
Shift to India, Vietnam
But now the company is said to be in the midst of shifting production to Vietnam and India, a dramatic change of strategy overseen by the conglomerate’s chairman Lee Kun-hee. Samsung opened arguably the world’s largest mobile phone manufacturing facility on the outskirts of New Delhi last year, with an annual output of 120 million units when fully operational.
The restructuring and shifting of Samsung factories is occurring at a time when other Chinese cities that rely on foreign companies for development and job creation are seeing a similar exodus as businesses move production facilities away.
Zhengzhou, known as the “iPhone city”, is also grappling with falling exports and revenue. Foxconn, Apple’s original equipment manufacturing partner, has run massive plants in the provincial capital of central Henan province since 2010.
But Foxconn chief Terry Gou said recently his firm already has sufficient capacity outside China to accommodate all production of Apple products at least for the US.
The city’s airfreight of cargo to the US and Europe, mostly electronic products, has leveled out since 2018, according to local papers.
Bloomberg also reported that Google will be moving some production of its Nest thermostats and server hardware like motherboards out of China to Taiwan, Malaysia and elsewhere in a bid to avoid US tariffs of up to 25%.
That said, Google has a smaller footprint in key hardware manufacturing hubs in China compared with its competitors and partners.
Among the Google hardware saddled with higher tariffs, server motherboards are among the most critical to its operations, as the search engine builds its own data centers in the US and elsewhere.
Motherboards are categorized as printed-circuit-board assembly, which faces 25% tariffs when imported directly from China into the US.