TAIPEI, Taiwan - The world's biggest electronics contractor, Foxconn, will cut its workforce in the southern Chinese city Shenzhen by three-quarters and move most of its manufacturing base inland, a Hong Kong newspaper reported yesterday.

By the time US$64 million projects by Foxconn's parent company Hon Hai Precision are finished in Chengdu, in China's south-west Sichuan Province, and Zhengzhou in the central Henan Province, Foxconn will only keep on Shenzhen's highly skilled Apple product assembly lines, according to the pro-China newspaper Wen Wei Po.

The total number of workers in the Guangdong city will shrink from 400,000 to 100,000, the paper said.

According the report, Foxconn will move its tablet computer and HD TV box manufacturing arms to Chengdu. Zhengzhou, on the other hand, will become the company's cell-phone business base and its new strategic point in China's inland regions.

The IT giant made its plans to move westward as labor costs in coastal cities such as Shenzhen rise. Foxconn doubled the wages of some of its Shenzhen employees after a spate of suicides in which ten workers died - which triggered a media firestorm about the company's treatment of employees.

The company is also trying to gain inroads to China's domestic demand market by shifting its focus from contract manufacturing, to more service and innovation-oriented businesses.

Citing Foxconn workers at its Shenzhen factory, the Chinese state-owned news agency Xinhua reported that Foxconn may also transfer part of its businesses to Tianjin, Wuhan, capital of Hubei Province, and Taiyuan, capital of Shanxi Province.

Any strategic move by a company of Foxconn's size will have a substantial impact on the cities involved and to other businesses. Even as Zhenghou and Chengdu are welcoming, if not actively fighting for, Foxconn's investment projects, Shenzhen and foreign businesses in the Pearl River Delta are figuring out how to cope with Foxconn's big moves.

The Xinhua quoted an unnamed Zhengzhou municipal government official as saying that "the city may offer preferential treatment - unprecedented in scale - in land use, logistic services, tax reduction and employment to Foxconn."

The company and Zhengzhou government are in talks on building a massive plant in the city that will initially employ 100,000 people and eventually 300,000, Xinhua reported.

Officials in Shenzhen, currently one of the world's largest manufacturing centers, tried to put on a brave face on Foxconn's possible exodus.

While the company's retreat will have a short-term impact on Shenzhen's GDP and exports, the city will fill the gap with more innovative businesses and enterprises with higher added-value, the Wen Wei Po quoted Wei Dazhi, an economist and a member of the Standing Committee of Shenzhen People's Congress, as saying.

Foreign businesses in the city, mostly with investors from Hong Kong and Taiwan, were less optimistic. The newspaper quoted Hong Kong Small & Medium Enterprises General Association President Peter Chai as saying that over half of the smaller Hong Kong businesses in the Pearl River Delta plan to close in one to two years as they cannot afford the kind of huge wage hikes offered by Foxconn.

The newspaper also quoted vice president of Taiwan Merchant Association Shenzhen, Tsai Cheng-fu, as saying that Foxconn's inland move is an isolated case that cannot be imitated by other Taiwanese businesses since the computer giant enjoys extraordinary preferential treatment from local governments. Taiwanese enterprises in the city need to make changes such as transforming their business models from manufacturing to services or focusing on China's domestic market, he said.