China Contract Manufacturer Reveals $64 Million Expansion

Taiwan's Hon Hai Precision announced during a shareholders meeting over the weekend a $64 million expansion plan for its new bases in Chengdu, in Sichuan province, and Zhengzhou, in Henan province. The announcement is the latest development in a series of reports about a move to inland China for the world's largest electronics contract manufacturer, which makes gear for Apple, Hewlett-Packard, Sony, and others.

In the initial stages, the production facilities set up in Chengdu will focus on tablet computers and also set top boxes that will be needed as China implements its triple play scheme to integrate the telecommunication, cable TV, and Internet industries. The new facilities in Zhengzhou will target mobile phone development and production.

Company representative Edmund Ding said the investment will be a first for Hon Hai in both of the cities. The plan is still subject to approval by the investment commission of Taiwan's Ministry of Economic Affairs.

Starting in the second quarter of this year, rumors have been rampant that Hon Hai was planning on setting up new production facilities in Chinese cities such as Chengdu, Wuhan, Zhengzhou, Langfang, and Yantai. Local governments have been in fierce competition for the production facilities and have offered land and tax incentives in the hopes of increasing investment in their district.

Hon Hai has been considering a move inland for years where salaries are lower and there is a larger supply of workers. The company's move inland hastened after a spate of suicides at its Shenzhen plant in southern China's Guangdong province tarnished its reputation worldwide.

A move inland would bring many of the company's migrant assembly line workers closer to their hometowns and would also help the workers stretch their wages because of the lower cost of living.

An insider at the company said that by October of this year about two-thirds of the production lines at Hon Hai's Shenzhen plant and close to 300,000 workers would be transferred inland. Hon Hai plans to leave most of its research facilities and high-end production lines in Shenzhen.