Taiwanese manufacturer Foxconn is building a new factory in southwestern China for Huawei, according to sources who spoke to the Nikkei Asian review.

It comes as wages in eastern China and Taiwan are rising, while Huawei is seeking to lower costs for their local smartphone offerings.

According to the sources, the factory will be built in Guizhou, which is also within the home-province of Huawei CEO Ren Zhengfei.

Huawei has performed relatively well against other counterparts weathering China’s slowing smartphone market. While competitors, including Xiaomi, and looking at significant sales cuts, Huawei has managed to run a successful dual strategy of high-end international smartphones alongside budget local handsets.

In 2016 China’s smartphone market is favoring vendors with existing infrastructure in the country’s smaller cities and regional centers, where there is still a pool of untapped smartphone consumers.

Local competitors Oppo and Vivo, also clients of Foxconn, recently replaced Lenovo and Xiaomi to enter the top five local vendors with their strong third and fourth-tier city presence.

By opening a factory in southwestern China, Huawei will be able to push down manufacturing costs, keeping the prices of their budget handset offerings low.

Foxconn has been operating in Chinese provinces with lower labour costs for several years, including existing operations in Guizhou. The company has developed a network of data centers in the province dating back to 2014.

Cate is a tech writer. She worked as a journalist in Australia, Mongolia and Myanmar. You can reach her (in Chinese or English) at: @catecadell or catecadell@technode.com

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