China rattles foreign firms again with arrests, Foxconn probe

SHANGHAI – The Chinese authorities are again shaking the confidence of foreign companies in the country with a series of arrests and an investigation into Foxconn Technology Group, Apple’s most important partner and one of the largest employers in China.

At the weekend, the state media said regulators were conducting tax audits and reviewing land use by Foxconn, the Taiwanese company that makes the vast majority of iPhones at factories in China. Hon Hai Precision Industry, Foxconn’s main listed arm, said it would collaborate with the authorities.

Meanwhile, an executive and two former employees of WPP, one of the world’s biggest advertising companies, have been arrested in China, people familiar with the matter said. Also, the government detained a local employee of a Japanese metals trading company in March, the Nikkei newspaper reported on Sunday. And earlier in October, a court formally charged an employee of Astellas Pharma on suspicion of espionage.

Shares of Hon Hai fell the most in more than three months on Monday. Foxconn Industrial Internet Company, a major Shanghai-listed subsidiary, breached its 10 per cent daily limit on the way down – its biggest loss on record.

China often does not explain publicly the actions taken by its regulators, leaving companies with operations in the country guessing at the ultimate goals of the government. Given the Communist Party of China’s immense power, this opaque approach to oversight of the economy has unsettled foreign executives.

The worker from the Japanese metals trading company was detained in March and there is still no public acknowledgment of or clarity about the specific charges.

“My sense is that the core of the leadership really worries about foreign influence as dissent among elites is growing,” said Dr Alicia Garcia-Herrero, Natixis’ chief Asia-Pacific economist. “It is not a signal for foreigners. It is a signal for the elites: Don’t follow that path.”

With China struggling through a housing crisis, President Xi Jinping and his administration have been trying to signal support for the private sector, seeking help in stabilising the world’s second-largest economy. Perceptions of the party’s economic stewardship suffered during years of Covid-19 lockdowns and a brutal crackdown on the technology industry, including on Alibaba Group Holding and co-founder Jack Ma.

Foxconn is a similarly surprising – and enormous – target. The company has been at the foundation of China’s growth as a high-tech manufacturing base and, with the Apple halo, a symbol of the opportunities for other companies in the country. Tesla, for example, has now made China a key base for its electric vehicle production.

Apple chief executive officer Tim Cook visited China last week, meeting Commerce Minister Wang Wentao to declare their support for “win-win” collaborations. The Apple chief’s rare visit follows a move by Beijing to ban some employees at government agencies and state-owned companies from using Apple’s marquee iPhone for security reasons. The latest iPhone 15 is also off to a disappointing start in China after Huawei Technologies stunned the market with the 5G-capable Mate 60 phones.

“The part of the leadership dealing with the economy and attracting foreign capital is not in the driving seat,” said Dr Garcia-Herrero. “So they can only watch and hope to minimise the damage by announcing the opening of certain sectors.”

In the current investigation, the tax authorities are conducting checks on Foxconn subsidiaries in Guangdong and Jiangsu provinces, the state-run Global Times said on Sunday, citing unidentified people with knowledge of the matter. The report also said officials in charge of natural resources are looking into the company’s use of land in Henan and Hubei provinces.

No further details of the probe and tax checks were provided in Global Times’ report. Hon Hai did not give specifics either in a filing with Taiwan’s stock exchange. Foxconn’s Zhengzhou plant, known as iPhone City, is located in Henan.

Foxconn’s billionaire founder Terry Gou resigned from the company’s board in September as he campaigns to become the next president of Taiwan. He previously dismissed claims that he would be susceptible to Chinese pressure, were he to win January’s election. The campaign administration referred questions about the investigation to Foxconn.

“I will not bow to China’s threats,” Mr Gou said at the August briefing announcing his presidential bid. Name-checking key customers including Apple, Tesla and Amazon.com, he said any halt to production due to political pressure would disrupt supply chains – something that China would need to explain to the world.

Taiwanese Vice-President Lai Ching-te, the presidential election front runner, voiced support for Hon Hai at a campaign event on Sunday. “China shouldn’t force Taiwanese companies to declare their position whenever an election is taking place. China should acknowledge that Taiwanese companies contribute to its economy greatly,” he said.

Beijing has been intensifying its scrutiny of Western businesses amid growing geopolitical tensions. In March, the authorities raided New York-based due diligence firm Mintz Group’s office in Beijing and detained five of its Chinese employees. In April, Bain & Company confirmed that the Chinese authorities had questioned staff at its Shanghai office.

The following month, Chinese state security officials visited a branch of Capvision, a consulting firm with headquarters in New York and Shanghai. BLOOMBERG