Apple is moving some of its iPad production out of China “for the first time ever” and relocating capacity to Vietnam, according to a Wednesday report from Nikkei Asia.
The move to Vietnam is in part a reaction to Chinese authorities’ aggressive lockdown of Shanghai, which lasted for two months and caused severe disruptions to supply chains. “The iPad will become the second major line of Apple products made in the Southeast Asian country, following the AirPods earbud series,” Nikkei Asia said.
Hudson Institute senior fellow Thomas Duesterberg told The Daily Wire that “we discovered the hard way over the past two or three years that interruptions to the supply chain” can be devastating to the global economy. He predicted that China’s most recent bout of lockdowns will accelerate the “movement outside of China.”
Indeed, COVID-19 and aggressive lockdown policies may be worsening the slowdown of China’s economy, which averaged nearly 10% growth per year since free market reforms in 1978 until recently, according to data from the World Bank. Beyond the virus, factors such as low labor force growth, slowing productivity, and lackluster returns to investment are dampening the Chinese economy. Growth is forecast to fall to 5% in 2022.
Meanwhile, Vietnam is becoming more important for the supply chains of Apple and other Western firms. Between 2010 and 2020, the Vietnamese manufacturing sector expanded 170% — from $16.7 billion to $45.1 billion, according to the World Bank. A report from Boston Consulting Group shows that members of the Association of Southeast Asian Nations (ASEAN) — which includes other rising industrial powers such as Indonesia and Malaysia — averaged 5% annual growth for manufacturing exports between 2015 and 2019, surpassing the global average of 3%.
Apple also asked suppliers to increase inventory for components in several product lines — including the iPhone, iPad, AirPod, and MacBook — as the company continues to wrestle with logistics hurdles. “Ideally, the company hopes these suppliers can prepare enough additional components to fully offset the amount made by those in Shanghai and nearby provinces such as Jiangsu, where the risk of supply chain disruption is higher,” sources told Nikkei Asia.
Despite the end of Shanghai’s lockdown, the Chinese Communist Party’s Politburo Standing Committee announced intentions last month to “unswervingly adhere to the general policy of ‘dynamic zero-COVID,’ and resolutely fight against any words and acts that distort, doubt or deny our country’s epidemic prevention policies.”
According to Duesterberg, Chinese President Xi Jinping is committed to zero-COVID “no matter what the cost is” — including lost business from Western firms. “As long as he is in power and he’s trying to perfect this policy, I don’t think he will back away simply because foreign companies might think about relocating,” Duesterberg said.
However, the editorial board of the Financial Times wrote on Tuesday that Xi and other leaders ought to revisit their calculus.
“Signs that China’s economy, the world’s second largest, may flirt with recession in the second quarter this year are worrying for global growth. But they provide Beijing with an opportunity,” the editorial board argued. “It could use these sobering indications to reconsider not only aspects of its ‘Zero Covid’ policy but also its treatment of foreign direct investors; what is good for them is good for China’s own economy.”