While Americans were enjoying the Thanksgiving holiday with their families and friends last week, protests broke out at the world’s largest iPhone factory in China, and protesters clashed with police. The incident is a reminder that Apple can no longer afford to ignore its China problem.
Foxconn, a Taiwan-based company and one of Apple’s most important suppliers, owns the factory in Zhengzhou, China. The factory reportedly employs about 200,000 people. Last week’s protests were driven mainly by two grievances.
First and foremost was workers’ dissatisfaction with the company’s strict Covid protocols and poor living conditions. It has been three years since the first Covid outbreak in Wuhan, China, became known. Yet Beijing has continued to stick to its “zero Covid” policy and to enforce it with harsh measures, including frequent lockdowns.
To avoid shutting down its factory, Foxconn has been running a closed-loop system, keeping employees confined within the factory and company-run dormitories. Following the Chinese government’s Covid protocols, workers have been subjected to daily mass Covid testing and mandatory quarantine for those who tested positive and everyone in their proximity. The company also compels workers to wear N95 masks and take Chinese traditional medicine (there’s no independent research supporting Beijing’s claim that certain traditional Chinese medicine can fight Covid).
According to Bloomberg, these Covid protocols are deeply flawed. For instance, “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.” As of October, about 20,000 workers were reportedly put in quarantine on-site.
Unable to go outside, workers complained about long physical isolations from friends and families. They were also unhappy with the living conditions inside their dorms. They told reporters that they either received poor quality food or sometimes no food at all. “In some dormitories, trash piled up for weeks because no one was allowed to leave the building.”
The Chinese government’s “zero Covid” policy created much fear among the Chinese. In October, when rumors about a Covid outbreak inside the plant began to spread, thousands of workers who were already sick of the isolation and the pathetic living conditions fled the factory on foot.
Foxconn tried to lure workers back by promising to pay an extra 30 yuan (about $4.19) in hourly pay. It might not sound much to Americans, but before this additional bonus, only those holding key positions inside the factory earned about 38 yuan ($5.30) per hour. Thus, the bonus was significant enough to entice some workers who fled in October back to work. But last week, when a rumor began to spread that Foxconn would delay the bonus payment until next March, workers had enough, and they staged a protest to express frustration with both the company’s and the government’s inhuman Covid policies.
The Chinese authorities responded to protests by sending hazmat-clad police wielding batons to crack down on protesters. Dressed like stormtroopers from “Star Wars,” these thugs have become the most-hated symbol of China’s “zero Covid” policy. The images of protesters shouting “stand up for your rights” while confronting the police went viral on China’s social media before censors removed them. Beijing further punished protesters by putting 6 million people in and around the iPhone factory under a five-day lockdown.
Foxconn later announced that it would honor the promised bonus payment for new workers and “offered a 10,000 yuan payment, equivalent to $1,400, to newly recruited workers who wanted to leave their jobs and return home.”
Apple’s Problems Will Continue
Apple’s China problem will remain even if these additional payments may quiet labor unrest temporarily. The Foxconn factory will have even more difficulty recruiting workers after these protests and the government’s subsequent crackdown. Since the plant was responsible for making “more than 80% of the latest iPhone 14 base models and 85% of the high-end Pro models,” a labor shortage means Apple likely will not have enough of the newest iPhones available for sale this holiday season, which in turn will severely affect the company’s bottom line. Morgan Stanley even predicted a worst-case scenario: “no more iPhones will be shipped from the site this year.”
Apple has only itself to blame for exposing itself to such supply chain risk. According to Reuters, nearly 50 percent of Apple suppliers are located in China as of 2019. In recent years, Apple has added more contract factories in China and employed hundreds of thousands of Chinese to assemble Apple devices, from Apple watches to iPhones to MacBooks. China represents not only Apple’s most critical manufacturing site but also an important market. In its 2022 third-quarter earnings report, Apple credits China for generating $15.5 billion in sales.
Apple’s reliance on China represents an enormous liability. The lack of an off-ramp from the Chinese government’s “zero Covid” policy means Apple’s supply chain and the company’s profitability are at the mercy of one man — China’s dictator-for-life, Xi Jinping. Since he has staked his reputation and legacy on “zero Covid,” Xi has shown no signs of backing down, even though his policies have been deeply unpopular due to the resulting economic cost and human suffering.
In the same week that workers protested at the Foxconn factory, another protest erupted in Urumqi, the capital of Xinjiang and home to millions of Uyghur Muslims and minorities. Protesters were angry because after a high-rise apartment building caught on fire, barriers erected by the local government to confine residents inside the apartment hindered residents’ escape and fire-fighters’ rescue efforts, leading to unnecessary deaths.
Xi doesn’t care about Chinese people’s suffering. He is probably more embarrassed that his policy hasn’t prevented Covid from spreading — China reported a record number of Covid cases last week, which proved that the government’s policy was an utter failure after three years.
While Apple prides itself on being a good global corporate citizen for supporting the environment and human rights elsewhere, the company choses to ignore environmental issues and human rights violations in China. The company’s reputation has suffered after repeatedly kowtowing to Beijing’s authoritarian demands. For example, in 2019, Apple, urged by the Chinese government, removed a police-tracking app used by Hong Kong pro-democracy protesters.
Apple has been widely criticized for its “one company, two systems” hypocrisy, and it isn’t alone. Many other Western companies, from Nike to BlackRock, also seem to believe they can bend their knees to the Chinese authorities while promoting liberal democratic values everywhere else, all without suffering economic consequences or damage to their reputations. Last week’s protests at an iPhone plant and their implications for Apple’s supply chain and the bottom line affirm that the “one company, two systems” approach is risky and unsustainable.
Even Foxconn has sought to reduce its reliance on China by building more factories in neighboring countries such as Vietnam and India. Leaders at Western companies, including Apple’s Chief Executive Officer Tim Cook, have a business and moral obligation to address their dependency on China and seek alternatives. Continuing business as usual will be irresponsible to their customers, employees, and shareholders.