Just look at that list of investors in Foxconn Industrial Internet’s IPO.
It was obvious that Baidu, Alibaba Group Holding and Tencent Holdings would take minor stakes in the Foxconn Technology Group affiliate’s blockbuster Shanghai listing. Those three are in the bottom tier of cornerstone buyers anyway.
Leading the lineup is the Shanghai State Development & Investment, which is subscribing for 73 million shares, or 3.7 percent of those expected to be sold. Central Huijin Investment, China Railway Investment, China Structural Reform Fund and China Life Insurance round out the top five.
Note the pattern: All are state-owned enterprises. In fact, the list of 20 strategic placements is dominated by state-affiliated investors.
This isn’t so much a case of companies being called in for national service -- Taipei-based Foxconn and its FII listing would have done just fine without state help -- as ensuring Chinese flag bearers join the spoils, and maybe even learn a thing or two about the business of technology.
Foxconn is pitching FII as a leading-edge company at the forefront of future trends. In reality, it’s a more mundane manufacturer whose bread and butter is making metal iPhone casings and internal frames, while industrial robots barely show up in its revenue data.
Nevertheless, maybe just standing close to a Foxconn unit will allow SOEs to be sprinkled with some of that high-tech fairy dust. It does make Apple phones, after all, not to mention supplying to Amazon.com and Cisco Systems.
China needs a few more hardware heroes, so co-opting one from across the Taiwan Strait plays well into two core Xi Jinping policies: building technological capability, and limiting Taiwan’s independence.
The billions of dollars China has thrown at the technology hardware industry -- notably semiconductors -- has done little to dent the dominance of US, Japanese, Korean and Taiwanese companies. Huawei Technologies is a notable exception, while the case of ZTE -- whose survival was threatened by a ban on buying US components -- merely highlights the gap.
Foxconn’s Hon Hai Precision Industry is Taiwan’s second-largest company, behind Taiwan Semiconductor Manufacturing Luring FII to list in Shanghai, with a Shenzhen domicile, is a great coup for China. It allows Beijing to claim FII as a Chinese company -- not unlike the approach taken to Taiwan as a whole.
Cries of hollowing out are a little overplayed: Taiwan gave up on manufacturing decades ago. China may assemble most electronics devices, but don’t forget that all of Apple’s assemblers are Taiwanese companies with Taiwanese executives dominating the top layers of management.
FII shows the closest Beijing can get to matching Taiwan in technology is to buy into a rare mainland IPO and hope to find some leverage, while picking up some business tips along the way. Dealing with Foxconn boss Terry Gou, though, it may learn that you can’t outfox the Fox.
By Tim Culpan
Tim Culpan is a Bloomberg Opinion columnist covering technology. -- Ed.
(Bloomberg)
