China’s Probe of Taiwan iPhone Maker Unearths Supply Chain Dilemma

by Carolyn Mathas

Chinese authorities conducted multiple inspections at subsidiaries of Taiwan manufacturer Foxconn, a major supplier of Apple’s iPhones, over tax and land usage. The timing of the audits is less than three months before Taiwan’s presidential election and amid Foxconn’s drive to expand production outside China. Foxconn’s founder, Terry Gou, is running as an independent candidate in Taiwan’s upcoming presidential election.

Taiwanese and foreign firms are welcome to expand in China as the probes are just meant to safeguard market order, according to the Global Times, the state-run newspaper that broke the news.

If found guilty, Foxconn could be fined. The probe could be legitimate, but coming less than 100 days ahead of Taiwan’s presidential election in January, it is difficult to see surprise tax raids on Foxconn as having no geopolitical implications.

The company derived 70% of its revenue from China as of March but is moving production abroad to address pressure from global clients who want to de-risk from China. Foxconn is also looking to start making electric vehicle components in places like Vietnam to lessen its dependency on Apple. The company has no real levers to push back on potential higher compliance costs that may stem from the investigations. For those looking to reduce their Chinese dependency, Foxconn could be the most compelling example of the true cost of reshoring.

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