July 13, 2017 10:00 am JST

Terry Gou knows how to keep politicians happy

Cultivating ties with China's power players pays off for Foxconn's chief

SHUNSUKE TABETA, Nikkei staff writer

Terry Gou, left, shakes hands with Chinese President Xi Jinping, right, at a diplomatic event in Beijing in February 2014. The Foxconn chairman has carefully cultivated his political connections. © AP

BEIJING Terry Gou knows what politicians want to hear. On May 26, the founder and chairman of Taiwan's Hon Hai Precision Industry, also known as Foxconn Technology Group, caught up with Chen Min'er, the Communist Party secretary for Guizhou Province, at the International Big Data Expo 2017 in Guiyang, southwest China.

"I'm glad to see you again this year," Gou said as the two shook hands. "Guizhou Province's development is really wonderful, since it involves making the most of the latest information technology, such as big data, and is sustainable, in harmony with the environment."

Chen comes from Zhejiang Province, and he was propaganda chief of the Zhejiang Communist Party organization in 2002 when Xi Jinping came to the province as a deputy party committee secretary. Chen became one of the future president's most trusted confidants and is now rumored to be in line for a spot on the Politburo Standing Committee, China's top leadership body.

Gou met Chen for the first time in 2013, during the latter's visit to Taiwan, the year after Xi had posted Chen to the impoverished province of Guizhou. Gou later visited Guizhou once or twice a year for various events -- and he never failed to bring a present for the province.

In 2015 and 2016, he began building server and smartphone assembly plants in Guiyang. The servers are supplied to HP and others, while the smartphones go to the likes of Huawei Technologies. In addition to creating jobs, these export-oriented factories have also helped the province bring in large amounts of foreign currency. Investing in Guizhou was a shrewd move -- it has given Gou even deeper ties to a man who may soon be among the most powerful in China.

Chen is not the only politician Gou has bet on. On March 1, the Foxconn chairman attended the groundbreaking ceremony for a liquid-crystal panel factory in Guangzhou, Guangdong Province. He shook hands with Hu Chunhua, Communist Party secretary of the province.

Guangdong's top official, Hu is a protege of former President Hu Jintao. The public were surprised this year when the two visited Guangzhou together during the Chinese New Year in late January.

Once regarded as a potential successor to Xi, Hu Chunhua seems to have been marginalized by the increasingly powerful president. But Chinese politics are a hotbed of intrigue, especially at the highest levels. It is impossible to tell from the outside what relationships are being formed, or to say who will prevail in the coming leadership shuffle.

Gou certainly seems keen to keep Hu on his side: He has poured some 61 billion yuan ($8.97 billion) into the panel plant, reportedly one of the largest investments ever made in Guangdong Province.

ADVANTAGEOUS TIES Gou founded Hon Hai in 1974 and established operations in Shenzhen, Guangdong Province, in 1988, the year before the Tiananmen Square massacre took place. Following the incident, investment from the West rapidly declined and conservative forces gained ascendancy in Chinese politics. Deng Xiaoping, the nation's paramount leader at the time, tried to get his reform and opening policy back on track. Gou forged strong ties with Deng by making a series of major investments in Shenzhen, where the latter was focusing his energy.

Shenzhen is also the place where Xi's father, Xi Zhongxun, spent his later years. It is said that the Xi and Gou families were friendly with each other, and that when Xi met Gou again in the spring of 2013 after becoming paramount leader, he addressed Gou as "my old friend."

Shenzhen became the base for Foxconn's China business, and the company has grown by leaps and bounds. It now boasts some 40 manufacturing plants and a workforce of around 700,000. The company's exports from China came to $115.9 billion in 2016, reportedly accounting for about 4% of the country's total trade value. Local leaders desperately want Foxconn to set up factories in their areas so that they can earn points with the central government for boosting employment and tax revenue.

Leveraging its strong connections with politicians, Foxconn has asked local governments to provide factory sites, buildings, electricity and water for little or no cost, giving it a marked advantage over rivals.

"In selecting factory locations, we have emphasized personal relations with national leaders and likely candidates, in addition to economic rationality," a Foxconn technical executive confided. In the days of President Jiang Zemin, the company often established factories in Jiang's home province of Jiangsu, the executive said. Later, the company decided to produce iPhones in Shanxi Province, where it is said that Ling Jihua and Bo Xilai wielded strong influence. Ling was a major force under the Hu Jintao administration, while Bo was regarded as Xi's rival, though both of these men eventually fell from power.

When Foxconn built an iPad plant in Chengdu, Sichuan Province, one rumor said it was related to the province's top official, Liu Qibao. Liu was the head of the Propaganda Department of the Central Committee and close to Hu Jintao. There was also talk of him possibly becoming a member of the Politburo Standing Committee. A competing theory held that the plant had more to do with Gou's personal relationship with Zhou Yongkang, a former Politburo member who was then influential in Sichuan but later lost his position.

Similarly, one reason behind the company's decision to start iPhone production in Henan Province may have been that Premier Li Keqiang is the former top official there.

These core factories are a blessing for local leaders, as they each employ more than 200,000 people and produce huge amounts of exports.

But Foxconn has had considerable trouble managing its massive workforce. More than 10 plant workers in Shenzhen and elsewhere committed suicide in 2010, raising a furor. The company raised wages and tried to improve other working conditions, such as enabling migrant workers to live with friends who had come from the same area. It has also cut down on the most menial tasks through automation. The problem, however, persists. The summer of 2016, the busy season for iPhone production, saw further worker suicides.

Gou has cultivated deep personal ties with Chinese politicians, and his influence on the global economy has grown in step with China's own sway. The question now is: What's next? While its chairman continues to make friends in the Chinese government, Foxconn's exports from the country dipped to $115.9 billion in 2016, down from a peak of $129.5 billion in 2012.

Gou may well sense the dangers of depending too much on China, given his purchase of troubled Japanese electronics maker Sharp. And in late April, he met with U.S. President Donald Trump at the White House, where it seems the two discussed conditions for building factories in America. At a shareholders meeting on June 22, Gou announced that he was considering investing a total of $10 billion in six U.S. states, including Wisconsin and Ohio. It is a sign of Gou's character that he is able to deal adroitly with both global and domestic politicians as he searches for his company's next growth path.

Asia300

Hon Hai Precision Industry Co., Ltd.

Taiwan

Market(Ticker): TAI(2317)
Sector:
Industry:
Electronic Technology
Computer Peripherals
Market cap(USD): 67,371.25M
Shares: 17,328.73M
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