Workers are fleeing the Chinese iPhone factory because of the zero covid policy

New Delhi (CNN Business) — Foxconn, one of Apple’s biggest suppliers, is facing a major disruption at its biggest iPhone assembly plant in China, as workers flee the facility that has been closed due to the Covid-19 outbreak, according to videos posted on social media.

The Taiwanese company is rushing to control the Covid outbreak at its campus in the central Chinese city of Zhengzhou. Authorities on Wednesday imposed a seven-day lockdown in the area where the Foxconn factory is located, an order that could affect iPhone production and shipments.

The closure and exodus of workers puts enormous pressure on Foxconn just before the start of the crucial Christmas shopping season and highlights how the country’s strict “zero covid” policy is hurting international business.

“[Comprendemos] their desire to return home perfectly,” Foxconn told its employees over the weekend, according to a post on the Zhengzhou government’s official WeChat account.

“For employees who voluntarily remain within the company’s factory premises, the Port Authority and the company will jointly ensure the health and safety of all,” it added.

Analysts say the chaos in Zhengzhou could threaten production at Apple and Foxconn in the coming weeks. Ivan Lam, senior research analyst at Counterpoint, estimated that 10% to 30% of iPhone 14 production could be affected in the short term if the situation does not stabilize.

The Zhengzhou campus is the world’s largest iPhone factory, according to Lam’s estimates, typically accounting for up to 85% of iPhone assembly capacity.

A Foxconn spokesman told Chinese state media that the company is trying to increase production in other centers.

“Right now, because now is the peak of the production season… [hay] high demand for workers,” a Foxconn spokesman told the Henan Daily on Monday, adding that the company was “also coordinating spare production capacity at other locations.”

Foxconn and Apple did not respond to CNN’s request for comment.

Shares of Foxconn, also known as Hon Hai Precision Industry, fell 2.6% on Tuesday.

Quadruple bonuses

Videos of many people leaving Zhengzhou on foot have gone viral on Chinese social media in recent days. The city, which has a population of more than 12 million, introduced extensive quarantine measures early last month after dozens of Covid-19 cases were identified.

State media say many Foxconn workers are among those walking miles to escape the city. Foxconn’s CEO told Yicai that workers are panicking because of the spread of the virus at the factory and lack of access to official information.

Foxconn said it is arranging vehicles for employees who want to go home, according to a post on the Zhengzhou government’s official WeChat account over the weekend.

The company also quadrupled daily bonuses for factory workers this month, according to a post on its official WeChat account on Tuesday.

While these disruptions will affect iPhone production in the short term, analysts say they may not reduce shipments of Apple’s iPhones in the crucial holiday season.

I think in a week or two things will be back to normal, given the current situation, Lam said.

“They still have many alternative production locations,” he said, adding that Foxconn has already begun moving production to other facilities in China, such as the southern province of Guangdong. “Things are under control now.”

And with Beijing showing little sign of letting up on its rigid zero-contagion policy, Apple has begun to boost production in other countries, including India, to reduce its reliance on China.

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