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Beijing's Foxconn embrace has a touch of desperation



View the investor list of Foxconn Industrial Internet Co.'s IPO.

Forget about BAT. It was obvious that Baidu Inc., Alibaba Group Holding Ltd. and Tencent Holdings Ltd. smaller holdings in the blockbuster listing of Foxconn Technology Group in Shanghai. These three are anyway in the bottom row of Ecksteinkäufer.

The lead company is Shanghai State Development & Investment Corp., which holds 73 million shares or 3.7 percent of expected sales. Central Huijin Investment Co., China Railway Investment Co., China The Structural Reform Fund and China Life Insurance Co. round out the top five.

Top Tier

Strategic allocations in listing of Foxconn Industrial Internet in Shanghai are dominated by Chinese state-owned affiliates

Source: FII


Note the pattern: All are state-owned enterprises. In fact, the list of 20 strategic placements is dominated by government investors. The top 14 have shorter vesting periods – half of the shares can be sold after 12 months, half to 18 months. Those on the totem pole, such as the Shanghai Oriental Pearl Group Co. and the BAT collective, have been stuck for 36 months.

I can not imagine that Foxconn boss Terry Gou had much choice, but he is a smart man political leader and would probably have come to a similar list himself.

This is less a matter of companies recruited for national service – the Taipei-based Foxconn company and its FII list would have performed well without government assistance – as a guarantee that Chinese flag bearers would join the spoils and maybe even learn something about the business of technology.

Foxconn puts FII at the forefront of future trends as a leader. In fact, it is a rather banal manufacturer whose butter metal casing and internal frames are made of metal, while industrial robots barely show up in its sales data.

Bread and Butter

Foxconn Industrial Internet is mostly a supplier of parts for mobile phones, and an assembler of servers

Source: FII


Nonetheless, it may become SOEs only near a Foxconn unit stand to be sprinkled with something of this high-tech fairy dust. It eventually makes Apple Inc. phones, not to mention delivery to Amazon.com Inc. and Cisco Systems Inc.

China needs a few more hardware heroes, so co-opting a cross-strait plays well in two core Xi Jinping policy: building technological capabilities and limiting Taiwan's independence.

The billions of dollars thrown to China by the technology hardware industry, especially semiconductors, has done little to dampen the dominance of US, Japanese, Korean, and Taiwanese companies. Huawei Technologies Co. is a notable exception, while the case of ZTE Corp. – whose survival was threatened by a ban on the purchase of US components – merely underscores the gap.

Foxconn's Hon Hai Precision Industry Co. is Taiwan's second largest company, behind Taiwan Semiconductor Manufacturing Co. Luring FII to list in Shanghai with a domicile in Shenzhen, 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.

Excavations are a bit exaggerated: Taiwan gave up production decades ago. China can assemble most electronic devices, but do not forget that all assemblers of Apple are Taiwanese companies with Taiwanese executives who dominate the top management layers.

FII shows that Beijing is able to Taiwan with the appropriate technology to achieve rare mainland IPO and hope to find some leverage, while some business tips along the way. In dealing with Terry Gou, however, it can happen that you can not outsmart the Fox.

This column does not necessarily reflect the opinion of the editors or Bloomberg LP and its owners.

To contact the author of this story:
Tim Culpan at tculpan1@bloomberg.net

To the appropriate publisher of this message:
Matthew Brooker at mbrooker1@bloomberg.net [19659029]
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