How the iPhone Built a City in China

By Eva Dou Features Dow Jones Newswires

ZHENGZHOU, China--Farmer Zhang Hailin remembers the day in 2010 when he watched as helicopters flew in over fields of corn and wheat here, hovering in spots to drop balloon-shaped markers.

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"Three days later, a hundred bulldozers were here," Mr. Zhang said.

The iPhone was coming, and it wouldn't be long before a new industrial town on the edge of Zhengzhou would be known as iPhone City.

Within months, boxy beige factory buildings appeared, power lines were connected and buses packed with workers began rolling up to Foxconn Technology Group, which assembles most of Apple Inc.'s smartphones.

A year later, Foxconn's billionaire chairman Terry Gou said the iPhone factory complex had 100,000 workers. Today, Foxconn says it employs about 250,000, roughly the population of Madison, Wis.

Analysts estimate that Foxconn, formally known as Hon Hai Precision Industry Co., makes 150 million iPhones each year, along with 20 million iPads and other electronics. Foxconn said it employs 1 million people across China and elsewhere, including southern Shenzhen, where it began manufacturing the first iPhone amid great secrecy.

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With Apple embracing outsourced manufacturing in Chinese cities, the iPhone's success in the decade since it launched has fueled China's rise at the center of the global electronics supply chain.

The explosion of higher-tech manufacturing was encouraged by Beijing as leaders sought to move factories up the value chain from making plastic toys and clothes. That shift transformed the lives of millions of Chinese, bringing welcome jobs but also leading to complaints from some workers of repetitive labor, restrictive work rules and crowded living conditions in company housing.

The iPhone's global success has increased scrutiny of Apple and its suppliers. The Cupertino, Calif., company said it holds Foxconn and others "to the strictest standards in the industry." It said it has educated 12 million workers on their rights, ensured workweeks don't exceed 48 hours, and offered career- and personal-development courses. "We hold our suppliers to the standard we hold ourselves: They must treat everyone with dignity and respect," a spokesman said in a statement. Apple said wages and working conditions at its suppliers have improved significantly in the past five years.

The move to Zhengzhou followed a spate of suicides in 2010 at Foxconn's other primary iPhone production facility in Shenzhen, along the coast where wages were higher. Foxconn said in response to questions from The Wall Street Journal that many factors were behind choosing Zhengzhou, including the proximity to workers' hometowns, and suitable infrastructure and transportation.

"Zhengzhou's pro-business policies and the investment the government continues to make to build strong infrastructure to support manufacturing make the province an attractive location for our operations," Foxconn said in a statement.

Like American company towns a century ago--Pullman, Ill., Hershey, Pa., and Henry Ford's Detroit--iPhone City revolves mainly around a single product, and it largely depends on that product for its wealth.

In iPhone City, shopping malls, restaurants and karaoke parlors, some started by former Foxconn workers, sprouted to cater to the Foxconn workforce. Government statistics indicate that exports of electronics have skyrocketed from Henan, a poor province of 94 million people with Zhengzhou at its heart.

Officials had welcomed the iPhone: China's top leaders greenlighted a national-level special trade zone, and the province threw its resources into constructing and populating what would become iPhone City.

During last fall's rush to make the iPhone 7, when Foxconn was short-handed, state-owned coal companies lent workers to Foxconn. In past years, according to government notices online, the province issued quotas to local authorities stating how many workers they needed to produce for Foxconn.

Readying for a production surge to make the next iPhone model, due this fall, recruiters recently visited villages to put up posters and find workers.

"While the government has provided assistance in helping us with our recruitment requirements, the costs associated with hiring and training new workers are all covered by Foxconn," the company said.

On a recent June day, a speaker blared outside the factory gate: "We're recruiting the cream of society. Your personality must be optimistic, your work diligent."

Foxconn workers earn some 1,900 yuan ($278) in quiet months to more than 4,000 yuan with overtime when production ramps up. Their income isn't high, but many are better off than they were as rural villagers. For the workers, the iPhone is an expensive choice, and many say they buy cheaper, Chinese-branded smartphones instead.

Yuan Yanling, 28 years old, said she has worked three stints on iPhone assembly lines, quitting each time better-paid or more fun jobs appeared. Last November she traded in her Foxconn uniform for heels and began selling cosmetics in a nearby mall.

"Our customers are virtually all Foxconn workers," said Ms. Yuan, who lives with her husband, a Foxconn employee, and two children in a rented one-room apartment.

Some of Ms. Yuan's neighbors in the apartment complex are less content than she, with some who relocated during development complaining about inadequate land compensation. Zhengzhou authorities said their land compensation was based on national standards.

In 2013, one farmer, Xiao Malai, rankled local government officials by protesting his home's demolition for a development inside the industrial park anchored by Foxconn's factories, according to court documents from the trial of an official who allegedly paid an industrial park employee and other villagers to beat the farmer. Mr. Xiao died as a result of the beating, and the official, the industrial park employee and others were jailed over his death.

"We were not aware of the tragic death of Xiao Malai or the circumstances of his death," an Apple spokesman said.

Other local farmers say the compensation paid for their land was more than they could ever earn in a lifetime cultivating wheat and corn. Mr. Zhang, who saw the markers drop from the helicopters in 2010, used part of his payout to buy two apartments. He said he earned more as a street sweeper than he did on the farm. His wife works at Foxconn, and their son also has.

Yet unease abounds in Zhengzhou over how long Foxconn--or Apple--will need iPhone City. Sales of the iPhone declined last year for the first time since its debut in 2007. During last year's production downturn, Chinese Premier Li Keqiang asked Mr. Gou whether iPhone production would rise or fall this year, according to people present at the meeting.

Foxconn said it has acquired 80% of the buildings it uses in Zhengzhou, leasing the remainder, and will continue to invest there.

Regardless, Chinese officials see the iPhone factory as a worthwhile investment, said Shi Pu, an economics professor in Henan. "Foxconn has helped train hundreds of thousands of Henan's people," he said. "They can use those skills to go on to other jobs."

Kersten Zhang and Yang Jie in Beijing and Tripp Mickle in San Francisco contributed to this article.

Write to Eva Dou at eva.dou@wsj.com

(END) Dow Jones Newswires

July 03, 2017 05:44 ET (09:44 GMT)