BREAKINGVIEWS-War for Chinese talent is next trade flashpoint

By Robyn Mak

HONG KONG, July 4 (Reuters Breakingviews) - The United States' trade war with China has so far focused on electronics, cars and other goods. But a new front may be emerging: talent. Contract-manufacturer Foxconn 2317.TW has told hundreds of Chinese engineers and technicians in its iPhone factories in India to return home, Bloomberg reported on Thursday, citing sources. This comes as Beijing tightens its grip on the country's experts in AI, rare-earths, manufacturing and more – an ominous sign that the flow of people and skills may be the next flashpoint.

It's not clear what's behind the latest Foxconn move. In January, Bloomberg reported that Chinese officials had "verbally encouraged" local governments and regulators to curb technology transfers and equipment exports to India and Southeast Asia, where companies like Apple AAPL.O and even domestic outfits including electric car maker BYD 002594.SZ, 1211.HK are setting up shop. At the time, China's Ministry of Foreign Affairs said the country "treats all countries equally and is open to enterprises" from everywhere.

Either way, this bodes ill for the Cupertino giant and others that are shifting supply chains out of the People's Republic to avoid high tariffs or geopolitical risks – or both. The iPhone-maker has made quick progress; boss Tim Cook reckons "the majority" of all U.S.-bound products will be made in India and Vietnam by the third quarter of this year.

This relocation will be painful for the world's second-largest economy. According to Cook, Apple supports 5 million Chinese jobs, over half of which are in manufacturing. Making it hard for manufacturers like Foxconn to move personnel and equipment might help in the short term, though that risks a response from India.

Over the longer run, technology transfers pose a far greater threat. Take China's stranglehold on rare earths. Countries are racing to develop their own supply chains, but most of the know-how is in the People's Republic. Beijing has already banned the export of certain processing and magnet-production technologies, but it is going further: last month, the Wall Street Journal reported that authorities were compiling a catalogue of Chinese nationals with expertise and restricting their travel.

Officials may be scrutinising artificial intelligence firms, too. Some employees at startup DeepSeek, for instance, are banned from travelling abroad freely, according to The Information in March. It will not be lost on Beijing that some of Silicon Valley's top AI talent, including those at Meta META.O, are Chinese.

China knows the power of enticing expert workers to its shores. Taiwan has long complained of mainland firms poaching its engineers, including renowned chip engineer Liang Mong Song, who left TSMC 2330.TW in 2017 to be the co-CEO of Shanghai-based rival SMIC 0981.HK. That should give Beijing enough reason to dig a deep trench for the global war for talent.

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CONTEXT NEWS

Taiwanese contract-manufacturer Foxconn Technology Group has told Chinese engineers and technicians to return home from its iPhone factories in India, Bloomberg reported on July 2, citing people familiar with the matter. More than 300 Chinese workers have left, and most of those still in India are support staff from Taiwan, one of the people said.

In January, Bloomberg reported that Chinese officials had "verbally encouraged" regulatory agencies and local governments to curb technology transfers and equipment exports to India and Southeast Asia, citing a person familiar with the matter.

Separately, China's Ministry of Commerce has told domestic rare-earth companies to provide a list of employees with technical expertise, the Wall Street Journal reported on June 25, citing people familiar with the queries. The goal is to develop a catalogue of Chinese nationals with rare-earth expertise.