The return of Xi Jinping as the leader of China for next five years has created fears among the investors, traders and private companies because of his controversial zero covid policy. In his speech at the 20th Congress of the Chinese Communist Party, Xi reiterated his commitment to the zero-COVID policy that has prioritised rampant lockdowns shutting down cities to stamp COVID outbreaks.
Zhengzhou which is popularly known as iPhone manufacturing hub, has been shut down and around a million residents ordered to stay at home. The country’s strict pandemic control measures, including lockdowns in Shanghai and Shenzhen earlier this year, have already undermined investors (domestic and foreign) confidence in the world’s second largest economy as a stable manufacturing base and accelerated the relocation of facilities to other markets.
The recent data of China Academy of Information and Communications Technology, a government think-tank, revealed that smartphone sales in the country plunged 21.9 per cent year on year to 19 million units in August. Popular Chinese brands Oppo and Vivo have seen a drop in the sales by 27 per cent and 23 per cent, respectively, while Honor, a spin-off brand from Huawei, dropped 16 per cent.
China’s smartphone market continues to remain the world’s largest, accounting for a quarter of global sales, but the slow sales reveal how consumer sentiment has suffered under Beijing’s strict Covid-19 controls. More importantly, the weakness spells trouble for upstream sectors such as semiconductors. Slowing demand for memory chips, for instance, is casting a shadow over business prospects for South Korean suppliers SK Hynix and Samsung Electronics, which both have China-based wafer fabs.
According to Market research firm Canalys, Apple was the only winner among China’s struggling smartphone vendors in the third quarter, with strong sales of the iPhone 14 drawing a sharp contrast to the weak performance of domestic brands. It said that China’s smartphone vendors struggled in the third quarter but Apple was the only winner to have done well in that period. Xiaomi did slightly better, with its sales down 17 per cent year on year for the quarter. Overall smartphone sales in China plunged 11 per cent year on year in the third quarter.
Canalys analyst Toby Zhu said that the Chinese smartphone market will remain flat or achieve only a slight growth in 2023. “Vendors have been suffering from rapidly declining demand and high inventory over the past quarters which has severely damaged confidence in the overall supply chain,” Zhu said.
In fact, a lot of hue and cry on social media was reported in China about a strict lockdown at the Zhengzhou compound On Weibo’s Foxconn topic page, many users asked for help and more attention on the outbreak. Some users said that there were new positive cases from the factory’s nucleic acid tests every day, but many people were not receiving food and medication. The outbreak on the Foxconn campus, which has nearly 300,000 workers, came as Zhengzhou tried to stave off a broader outbreak amid China’s continuing strict zero-Covid policy.
Meanwhile, Apple’s largest supplier, Foxconn Technology Group stated that that the world’s largest iPhone factory, in the central Chinese city of Zhengzhou, is dealing with a small Covid-19 outbreak but maintained production remains “relatively stable”. “For the small number of employees affected by the pandemic, Foxconn, in compliance with local epidemic prevention policies, is providing the necessary guarantees for livelihoods, including material supplies, psychological comfort and responsive feedback,” the company said in its statement.
The struggles for the Foxconn campus is a reflection of the challenge for the Chinese government as it seeks to meet economic development targets while maintaining zero tolerance for any Covid outbreaks. The country’s strict pandemic control measures, including lockdowns in Shanghai and Shenzhen earlier this year, have undermined investor confidence in the world’s second largest economy as a stable manufacturing base and accelerated the relocation of facilities to other markets.
Analysts have raised objections to the selection of teammates by Xi Jinping. According to them, indications of a bleak economic outlook have already come as Xi has given preference to personal loyalty than technocratic competent professionals. Xi has replaced seasoned economic officials with people with much less experience, giving a signal that he would follow ideology-driven policy that may further dent private sector growth and worsen Beijing’s ties with the United States.
“The market is clearly disappointed by the new seven-man Politburo Standing Committee which is filled with Xi’s allies,” said Lilian Co, who manages the Strategic China Panda Fund at Eric Sturdza Investments. “Since Xi’s ideology has not been market-friendly in the last few years, a leadership team loyal to Xi means no change in policy direction as long as he is in power,” she said to CNN.
Investors and private companies are living in fear due to Xi’s tightening grip on power that will mean the continuation of policies such as the zero-Covid strategy and crackdown on the private sector. His policies have already caused serious damage to the world’s second-biggest economy.