This is really interesting and I somehow missed it when it started 11 days ago. Chinese state media announced that Foxconn, the Taiwanese company that is China’s number one employer and the builder of a majority of Apple’s iPhones, was being investigated by various Chinese authorities.

Chinese mainland tax authorities have conducted tax inspections on key enterprises of Foxconn in Guangdong and Jiangsu provinces, among other places, in accordance with the law, and the natural resources department has also conducted on-site investigations into the land use of key enterprises of Foxconn in Henan and Hubei provinces, the Global Times has learned exclusively from sources on Sunday.

The relevant departments conducting tax inspections and investigating land use situations of domestic enterprises in China are normal market supervision activities, which are reasonable and legal. Enterprises of Foxconn have the obligation to cooperate and jointly maintain market order, and should correct if any violations have been found, Zhang Wensheng, deputy dean of the Taiwan Research Institute at Xiamen University, told the Global Times.

Surprise, you’re being audited! This is what you call a not-so-subtle hint. Axios correctly identified this as a warning to the US which recently announced more restrictions on the transfer of US technology to China.

“This is a shot across the bow — a message to Foxconn but also to Foxconn’s customers, alerting them that if relations between China and the U.S. get worse, these companies could incur costs,” said Chris Miller, associate professor of international history at Tufts University and author of “Chip War.”

“The hope in Beijing would be that these companies would then lean on their governments to improve relations.”

But there are additional messages being sent here, several in fact. Taiwan’s next presidential election takes place in January and one of the candidates is the founder and former chairman of Foxconn. He has been very blunt that he will not respond to any Chinese attempts to influence him, even daring China to seize Foxconn’s property.

In August, Foxconn founder and former chairman Terry Gou, a self-made septuagenarian billionaire, announced he would contest Taiwan’s presidential election in January as an independent candidate.

When asked by reporters how he plans to deal with pressure from Beijing given his many years of doing business in China, Gou said that he won’t “comply with its orders.”

“If the Chinese Communist regime says, if you don’t listen to me, we will confiscate Hon Hai [Foxconn]’s property. I will say ‘yes, please do it,” Gou said, according to a video of his press conference in Taipei.

But he added that he didn’t think Beijing would threaten Foxconn, as global implications will be huge. Foxconn has tens of thousands of shareholders around the world, including major investment firms and pension funds, he said.

“If the CCP dares to [confiscate Foxconn’s property], which country, investment firm or company in the world would dare invest in China?”

So, Gou basically thumbed his nose at China and these investigations are, partly, their response. Gou is right that Xi Jinping won’t go as far as seizing Foxconn’s property. If they did, that would put an end to foreign investment in China. Still, these bogus investigations could result in fines as a way to remind Gou and others who is in charge. It would be a risky thing to do when China’s economy is already struggling.

And we’re still not done because these investigations also send a clear message to both Apple and Foxconn itself. The message is that your product pipeline and the cost to produce that product could face serious challenges at any moment.

For multinationals, the tax audits expose Foxconn’s difficulty in navigating the global business environment as tensions across the Taiwan Strait escalate. The company, which derived 70% of its revenue from China as of March, is moving production abroad to address pressure from global clients who want to de-risk from China. It’s also looking to start making electric-vehicle components in places like Vietnam to lessen its dependency on Apple. But as long as the People’s Republic remains its main revenue source, Foxconn must also convince Beijing that it is sticking to China’s economic and political agenda.

Striking the balance isn’t easy. Foxconn has no real levers to push back on potential higher compliance costs that may stem from the investigations. For global onlookers anxious to reduce their Chinese dependency, Foxconn could be the most telling case on the true cost of reshoring.

Both Apple and Foxconn are clearly aware of the danger and are trying to move their operations out of China as quickly as possible. Today there were reports about Apple’s shift to building products in India.

India will continue to rise as an iPhone production base in the coming years while Foxconn’s production of the Apple smartphone in China could shrink significantly, according to a research report.

The proportion of India-made iPhones, which account for 12 to 14 per cent of global shipments in 2023, is expected to reach 20 to 25 per cent of the total next year if production expansion goes smoothly, Kuo Ming-chi, a TF International Securities analyst known for his accurate assessment of Apple’s business, wrote in a note on Wednesday.

Foxconn operates the world’s biggest iPhone factory at present in Zhengzhou city in China’s central Henan Province, but Kuo expects production scale there to shrink by 35 to 45 per cent by 2024…

Its plant in Taiyuan, northern Shanxi Province, could face a whopping fall of 75 to 85 per cent in output next year, according to Kuo’s report.

Apple will also start building the iPhone 17 standard model in India, the first time it has started building a new model anywhere but China. That’s a smart move by Apple, but I wonder if they are moving quickly enough.

As the US-China relationship continues to get worse and China seems intent on disrupting foreign investment to show its power/displeasure, it’s only a matter of time before Apple becomes a target. In fact, with the investigations into Foxconn opened last month and then leaked to a state media outlet in English, you could say it already has.