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Foxconn's Terry Gou walks a tightrope between US and China

Tycoon to build panel facility that will create 15,000 jobs in southern China

Foxconn Chairman Terry Gou has said he is "not willing to choose" between the U.S. and Chinese markets. (Photo by Debby Wu)

GUANGZHOU, China -- Chairman Terry Gou of Hon Hai Precision Industry, better known as Foxconn Technology Group, has begun to work on a new panel facility in southern China as part of the company's ongoing efforts to expand its base in the region. He also hinted that plans to invest in the U.S. may not materialize any time soon due to labor issues and a lack of incentives.

"We want to link Shenzhen, Guangzhou, and Pearl River Delta, the largest regional economies in China, with our 27 years of experience in Shenzhen. We are hoping to grow roots in Guangzhou. We are bringing the best technology in the world here," Gou said on Wednesday.

"We are bringing the complete supply chain here," he said. "We are combining advanced equipment, panel material, and research and development here."

The Taiwanese tycoon made his comments during an event marking the start of the construction of the $8.87 billion advanced display industrial park in the Zengcheng district in the southern Chinese city of Guangzhou.

The project was first announced at the end of 2016. It is a collaboration between Gou-controlled Japanese panel maker Sakai Display Products Corp. and the Guangzhou government, though the two parties did not disclose their contributions to the project.

It is the largest investment in the southern Chinese city since the country opened itself for foreign investments in the 1980s, according to local officials.

Gou said he is bringing some 100 suppliers to invest in the park to build a comprehensive display production ecosystem, and the new complex could eventually create as many as 15,000 engineering jobs.

Foxconn already has several facilities in southern China, with the Longhua campus in Shenzhen serving as the company's Chinese headquarters. Longhua is about 90 minutes away by car from Zengcheng.

The new Zengcheng campus will house an advanced 10.5-generation panel facility, whose construction is expected to be completed in 2019, that makes high-resolution 8K screens. 10.5-generation panels come in sizes of 2.94 meters by 3.37 meters and are typically used to make large-sized TVs that are over 40 inches.

Gou said that Corning and Cisco, two major U.S. companies, will also invest in the new tech park. He said Corning will invest together with the Taiwanese company in a facility to make mother glass required for 10.5-generation panels, while Cisco will create a research and production center. But he did not divulge investment figures.

Corning said in a statement that it was committed to meeting customers' demand and supporting their growth, while Cisco did not immediately respond to an email seeking comments outside of office hours.

Good party turnout

General Manager John Zhang of Corning's display technology business attended the event in Zengcheng on Wednesday.

Also present was a senior executive from German display material supplier Merck, and Chairman Makoto Kimura of Nikon, the only company in the world that makes exposure equipment for 10.5-generation panel facilities.

Top provincial official Hu Chunhua, the party secretary in Guangdong and a protege of former Chinese President Hu Jintao, also made an appearance at the event. Gou revealed that he and Hu have been friends since the late-2000s when the official was the governor in Hebei province.

Despite the felicitous start for the new park, there are concerns that large-sized panels are not a wise investment.

David Hsieh, a senior director at research company IHS Markit, said that Foxonn would face significant challenges with its 10.5-generation facility as Chinese rivals including BOE Technology Group and China Star Optoelectronics Technology are ahead of it in increasing capacities.

"BOE's 10.5-generation facility will begin production in the third quarter in 2018, and China Star is lagging behind a bit. However, Foxconn's 10.5-generation facility can only start churning out panels in 2019 or even 2020," Hsieh said.

Hsieh said that Foxconn will be fighting an uphill battle in the large TV market in China.

Foxconn is building a new panel facility in the southern Chinese city of Guangzhou. (Photo by Debby Wu)

"There will be the issue of oversupply, so the key factor to Foxconn's success is whether it can manage to sell all its large panels via [Foxconn-controlled] Sharp, otherwise if they still need to sell extra panels to other brands, that would create extra competition for themselves," Hsieh said.

In response to concerns over a supply glut, Gou said that his company will excel eventually with superior products.

In additional to the Zengcheng facility, Foxconn's current China expansion efforts include plans to recruit some 12,000 college graduates in the country in 2017, a move seen as an attempt to groom more locals to join middle management.

The key Apple assembler's move to grow its China operations comes amid mounting trade tensions between Washington and Beijing with U.S. President Donald Trump accusing the Asian powerhouse of stealing American jobs and engaging in currency manipulation.

Trump has also frequently targeted Apple, which accounts for over 50% of Foxconn's total revenue, in his attack against American companies he thought to have caused domestic job losses by outsourcing manufacturing abroad. Trump has also vowed to push the tech titan to make its gadgets at home.

Responding to Trump's protectionist approach, Gou said in January that he was considering building a "highly automated" facility to make large-sized panels in the U.S. and also a molding factory in Philadelphia.

On Wednesday, Gou told reporters that he had returned earlier this week after a short trip to Washington, but declined to say whether he met anyone in the Trump administration.

He raised uncertainties over plans to manufacture in the U.S., saying he was not sure whether American officials could be efficient in tackling investment challenges and regulations to attract foreign investors.

"I am concerned as to whether the U.S. can resolve all the investment issues in only a few months' time," Gou said, adding America also still lacks skilled labor and a comprehensive supply chain for the display industry.

"Does the U.S. offer incentive programs for foreign investors? They'll need to pass bills first and we'll need to wait for American authorities to make a decision first," Gou said.

But Gou still tried to strike a balance between the two major markets in the world. "No one is willing to see a trade war happen," he said. "I am not willing to choose between (U.S. and China). Why should I give up on any market?"

Gou also urged the world's two top economies to get along for the sake of everyone.

"It is in the interest of the entire humanity that China and the U.S., the top two economies in the world, can get along peacefully," Gou said. "They are in the process of gambling with each other, and I can foresee that the two will eventually work together to grow economies and deliver beneficial outcome for many. If they don't, then everyone will be losers."

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