Foxconn: China probes warn Taiwanese to Gou figure

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Billionaire entrepreneurs tend to say what they think. That certainly applies to Terry Gou. The founder of Taiwanese iPhone maker Foxconn, has trumpeted that he will take no orders from Beijing or bow to its threats.

This helps Guo’s positioning in the race to become the next president of Taiwan, an independent island long-claimed by China. For Foxconn, standing up to the Chinese dragon will be harder.

Chinese state media has reported official probes at Foxconn’s mainland manufacturing bases on tax and other compliance grounds. China’s natural resources department conducted on-site investigations into land use by Foxconn enterprises in Henan and Hubei provinces.

This is a shrewd way for Beijing to remind Taipei of its power. The audits come just months before Taiwan’s January presidential election.

Putting pressure on one of Taiwan’s largest companies tells Taiwanese to watch their step. Targets include Gou, who has resigned from Foxconn’s board but remains the largest shareholder. Another is leading candidate vice-president William Lai. He is expected to take a hardline stance against Chinese aggression

The land use probes are especially worrying. One focuses on Zhengzhou, the capital of east-central China’s Henan province, and home to Foxconn plants that makes products for global brands including Apple. Known as “iPhone City” it employs 200,000 workers.

Disruption from government raids or penalties could prove costly for Foxconn and its global clients. Worker protests that shook the Zhengzhou plant last year meant about $1bn each week in lost iPhone sales, according to analysts’ estimates.

Local competition is growing. For more than a decade, Foxconn had an unrivalled lead in assembly and production of high quality products at a scale that was needed for global groups such as Apple. Now, foreign customers are ordering growing volumes of premium products from Chinese contract manufacturers such as Luxshare.

Shares of Foxconn slipped on Monday. The stock of China-listed subsidiary Foxconn Industrial Internet fell by its daily limit of 10 per cent. Foxconn trades at 11 times forward earnings, Chinese rival Luxshare Precision Industry trades at more than a 50 per cent premium to Foxconn

Historically, Chinese probes into companies have foreshadowed broader crackdowns. Police recently raided the Shanghai offices of WPP-owned media agency GroupM and questioned staff at consulting group Bain. Beijing may be readying a push against foreign multinationals as a whole.