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China blocks restart of Foxconn plants due to coronavirus: sources

Move further disrupts production of Apple, Amazon and Huawei devices

The disruption to Foxconn production will likely impact the supply of iPhones. (Nikkei montage/Reuters)

TAIPEI/HONG KONG -- Key iPhone supplier Foxconn's plan to resume production on Monday has been called off by the Chinese authorities due to worries surrounding the coronavirus outbreak, the Nikkei Asian Review has learned.

The action further worsens the supply chain disruption for global electronics companies, including Apple, Amazon, Google and Huawei. Foxconn is the world's biggest iPhone assembler, and it makes Huawei smartphones and Amazon Kindle tablets as well as echo speakers, while it also supplies HP, Dell and most the major electronics brands.

Public health experts in Shenzhen informed Foxconn, which trades as Hon Hai Precision Industry, that its factories there face "high risks of coronavirus infection" after conducting on-site inspections and therefore are not suitable to restart work, four people familiar with the matter told Nikkei.

"Violation of epidemic prevention and control could potentially face the death penalty," the internal meeting memo seen by the Nikkei Asian Review said.

Foxconn's Zhengzhou complex, which is the world's biggest iPhone production base, also canceled plans to resume work on Monday, they said.

"The local governments do not want to risk the potential virus spreading in such a labor-intensive working environment. No one wants to bear the responsibility of restarting work at this critical moment," one of the sources, who has been briefed by Foxconn's plan, said.

The health risks pointed out by the Shenzhen public health authorities include poor airflow of the restaurants and employees' dormitories, according to the internal meeting memo. Given that the production facilities use central air conditioning, the working environment poses even higher risks due to the density of workers, the memo showed.

However, Foxconn may find it challenging to address such concerns given that the central air conditioning system is part of the equipment necessary to prevent dust from disrupting the production process.

The iPhone assembler on Friday afternoon canceled the flight bookings for Taiwanese employees to go back to China between Saturday and Feb. 14 after a video conference held by Chairman Young Liu in the morning, sources said.

Liu decided that Foxconn's Zhengzhou complex could not restart work unless it had been evaluated and approved by the local government, they said.

Foxconn's display arm, Innolux, which has facilities in Shenzhen, on Friday published a note to employees advising them not to come back to its Longhua complex on Monday, according to a separate internal announcement seen by Nikkei.

"The government has been extremely strict this time," said a Shenzhen-based Apple supplier who works closely with Foxconn.

The extended shutdown comes at a time when the inventory of iPhones -- and the iPhone 11 in particular -- has already been running low. The latest pushback adds another delay in Apple's product shipment plans.

Apple has also extended retail store closures in China, with most stores remaining closed until Feb. 15 amid the worsening coronavirus outbreak, Bloomberg News reported.

Foxconn's delayed return to work will be a warning sign to other electronics suppliers, as the Taiwanese manufacturing giant has been taking aggressive steps to prevent the spread of the virus. It has even made its own surgical masks for internal use.

iPad supplier Compal Electronics on Friday also postponed  plans to resume work at its Kunshan facilities, located in Jiangsu Province, from Monday to Feb. 17, the company announced on its WeChat account.

China's National Health Commission said Friday that the coronavirus epidemic so far has caused 722 deaths in the country, with 31,774 confirmed patients. The deadly outbreak has sparked anger in China and caught global attention, and more than 400 government officials have lost their jobs or been punished for malfeasance, the Xinhua News Agency reported.

Foxconn told the Nikkei Asian Review that the operation schedules for its facilities in China follow the recommendations of the local governments, and "we have not received any requests from our customers on the need to resume production earlier." The company added that they are working with the local governments to facilitate the necessary preparations for their employees to safely return to work.

But some companies are still on track to restart operations at the beginning of the week as planned.

In Shenzhen, electrical vehicle maker BYD is expected to resume operations on Monday, as is telecom gear maker ZTE.

American electric vehicle maker Tesla, which launched its first Chinese plant in Shanghai last year, will also restart operations on Monday. The Shanghai city government said Saturday it supports the resumption of production at Tesla and other companies.

But smaller jurisdictions and towns are asking to be granted authority to extend mandatory shutdowns.

According to Chinese media, Yuzhong District, which is the center of the city of Chongqing and home to many government institutions and offices, had notified companies Saturday to hold off on restarting operations even after Monday. With no sign that the outbreak is subsiding, there is the possibility that more companies will voluntarily hold off resuming operations.

Additional reporting by Takashi Kawakami in Guangzhou

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