Apple’s new 5G iPhones could reportedly be manufactured by a company within Mainland China for the very first time

• Apple has frozen any new business deals with primary iPhone manufacturer in China, Pegatron, due to labour abuse allegations.
• Luxshare Precision Industry could be the likely beneficiary of this fallout, according to a local Chinese news outlet The Paper.
• Pegatron’s shares were down over 2% on the Taiwan Stock Exchange before closing, while Luxshare Precision Industry’s stock was up nearly 1% on the Shanghai Stock Exchange at the end of Monday.

China may be touted for its cheap labour, but the country is also known to be vagrant when it comes to its labour protection laws. This time around, the premium smartphone maker Apple is putting one of its key suppliers in the country, Pegatron, on probation after discovering violations with a student workers’ program, according to Bloomberg.

While this may put a wrench in the supply chain for Apple, it opens up a plethora of possibilities for the competition. This is because Pegatron is only one of Apple’s many partners that help the US giant manufacture its signature iPhones.

Who gets Apple’s new iPhone orders?
In India, the backbone of Apple’s manufacturing is managed by Wistron and Foxconn. While they may welcome the move to fill in the gap left behind by Pegatron, Apple could likely approach a new player altogether. Luxshare Precision Industry is reportedly in line to become the first mainland company to assemble the iPhone, according to a local Chinese news outlet The Paper. Pegatron, on the other hand, is located in Taiwan.

Besides, Foxconn dealt with its share of controversy back in 2010 when a spate of suicides led to protests over the harsh working environment at its plants. Since then, Apple has upped its standards and started to audit its third-party manufacturers, with the condition that labour law violations may lead to the termination of ongoing business.

“Pegatron’s current iPhone business should not be affected. However, it is likely that Pegatron will lose some orders for the Apple’s new handsets next year to Luxshare, which is poised to become a new iPhone assembler in 2021,” GF Securities analyst Jeff Pu told Bloomberg. These new orders include Apple’s four new 5G iPhones.

Pegatron’s shares were down over 2% on the Taiwan Stock Exchange before closing, while Luxshare Precision Industry’s stock was up nearly 1% on the Shanghai Stock Exchange at the end of Monday.

Pegatron went out of its way to hide labour code violations
Apple claims that even though it did not find any evidence that hints at forced or underage labour, it did find falsified paperwork that hid several violations. “The individuals at Pegatron responsible for the violations went to extraordinary lengths to evade our oversight mechanisms,” the company said in a statement.

Pegatron has clarified that the violations were incidents of students working night shifts, overtime, and positions that were unrelated to their degree in college. The manager who oversaw the student workers’ program has since been fired, and quick action has been taken to strengthen procedures within its facilities.

As of right now, all student workers have been pulled off the production lines and sent home with the proper compensation and necessary arrangements.

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