Scott Walker Did His Homework, and Now It’s Paid Off
In March, I was in Guangzhou when Foxconn Chairman Terry Gou threw the first shovels of dirt for a new flat panel display factory, and threw some shade at the U.S. in the process. “We are seeing Guangdong’s efficiency. We are seeing Guangdong’s charisma and drive,” he said at the time. “We feel if any state governments in the U.S. want to attract Foxconn, they should come here to study and learn.”
Wisconsin Governor Scott Walker apparently did his homework because yesterday he signed a memorandum of understanding with Gou to build a very similar plant in his state, with $3 billion in government assistance.
The South China Morning Post has a piece this morning analyzing the two deals, which are surprisingly similar. They will both build flat panel display screens for televisions and other devices, and both require investments of close to $10 billion. The Guangzhou factory, expected to open in 2019, will employ 15,000 people; the Wisconsin factory, expected to open in 2020, will employ 13,000. The Guangzhou government didn’t reveal how much assistance it is providing, but preferential land and tax treatment is common for such projects in China, and the recorded sale price for the land appears to be a small fraction of what would normally be paid.
Workers at the Foxconn plant in Wisconsin are expected to be paid around $54,000, which is “six or seven” times the rate a Chinese Foxconn worker is likely to earn. But Foxconn will be required by Chinese law to make contributions to pension and other state welfare programs that raise the hiring cost. And Chinese wages are rising rapidly—more than doubling in the last decade—while U.S. wage inflation is dormant.
Bottom line, concludes Liu Kaiming, head of the Institute of Contemporary Observation in Shenzhen, “the U.S. could possibly end up being a cheaper and better place for Foxconn’s display screen factory” if other costs, including taxes, electricity and logistics are considered.
The U.S. and Chinese plants are intended to serve their local markets. But no doubt they also are intended to help Gou stay out of the trade spat between the two countries. A report out this morning suggests that spat is depressing U.S. investment in China.
Enjoy the weekend.