May 21, 2022

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China's coronavirus lockdowns are set to further disrupt global supply chains

China’s coronavirus lockdowns are set to further disrupt global supply chains

BEIJING – Trucks have been delayed due to driver testing. Container prices are on the rise with ships waiting for hours at ports. Products are piling up in warehouses.

As Chinese officials scramble to contain the country’s worst outbreak of Covid-19 since early 2020, they are imposing lockdowns and restrictions adding chaos to global supply chains. The actions in China, home to about a third of global manufacturing, have disrupted production of finished goods such as Toyota cars, Volkswagen and Apple’s iPhones, as well as components such as circuit boards and computer cables.

On Tuesday, cases rose to more than 5,000 new infections nationwide. This outcome is small compared to many other large countries. But China has taken Zero-tolerance approach For disease outbreaks that require strict lockdowns as well as mass testing and quarantine at government facilities. As many of the country’s largest industrial cities battle outbreaks, such measures are negatively impacting the factories and transportation networks that form the backbone of China’s manufacturing industries — and the global economy.

After last week’s hike, Oil prices fell by about 5% In early trading on Monday, partly due to fears of an economic slowdown in China. And the global economic damage already caused by China’s rise to cases — and the government’s tough response — could only get worse.

Officials in Beijing and an ever-growing list of cities and counties said the virus was still spreading and the government needed to take ever tougher measures to stop it.

“Recently, there have been localized cluster epidemics in many places in our country, especially of the Omicron type, which spread rapidly and was highly hidden,” said Mi Feng, a spokesman for the National Health and Health Commission, on Tuesday. “The prevention and control of the epidemic is more difficult, and the situation is serious and complex.”

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In Jilin Province in northeast China, where there is the largest concentration of recent cases as well as many factories making cars and auto parts, Zhang Li, deputy director of the provincial health agency, said residents and officials will have to “mobilize and act urgently to overcome the difficulties.” related to hitting the teeth – we’re racing against time.”

For some foreign investors, the outbreak itself may be less worrying than the unpredictability of government actions. “Business risks in China are now higher than at any time since late spring 2020,” said Julian McCormack, president of the British Chamber of Commerce in China.

The shutdowns have also halted work at electronics plants in the south and a wide range of industrial firms in central China. Cities near Shanghai have closed highway exits or required every driver to show a negative PCR test — requirements that have also created mile-long lines of trucks trying to move critical components between factories.

High international shipping costs, a serious problem last year that contributed to inflation in the United States, are beginning to rise again after a dip during the Chinese New Year holiday last month.

The cost of shipping a container of cargo from Asia to the West Coast of the United States rose to $16,353 as of last Friday, before the latest coronavirus restrictions took effect, from $16,155 a week earlier. Prices nearly tripled from a year ago and are up 12 times more than they were two years ago, according to data from Freightos, a shipping booking platform.

Ports in China now require workers to live and work on the docks for two months at a time, away from their families, to prevent infection. This has allowed ports to continue operating even during ongoing outbreaks, in contrast to severe shipping delays last spring and summer when infections forced the closure of large container terminals in Shenzhen and near Shanghai.

With truck traffic cut off to docks, ships face delays at ports of at least 12 hours, and may soon have to wait up to two weeks, said Julie Gerdman, CEO of Everstream Analytics, a supply chain analysis firm. .

“Even the most prepared companies will be affected by these new closures in China, as flexibility within the supply chain is very minimal,” she said.

Air freight also faces new complications. China’s Civil Aviation Administration said Tuesday that many of the remaining international flights to Shanghai’s sprawling Pudong Airport will be redirected to other Chinese cities from next Monday until May 1. But further delay exports.

At least five large industrial cities have completely shut down due to the coronavirus: Dongguan and Shenzhen in southern China near Hong Kong, where Foxconn has massive factories manufacturing iPhones and other Apple products; Changchun and Jilin City in Jilin Province; And Langfang is next to Beijing. Some smaller towns, such as Suifenhe and Manzhouli on China’s border with Russia, have also been closed.

In Dongguan, the industrial city of 7.5 million people, some factory owners said they were still allowed to work as long as their workers lived in dormitories within factory complexes, and no one was allowed to leave or enter.

Ding Xiwen, the owner of a small factory that makes packaging materials in Dongguan, said dozens of his employees still live and work inside the complex, but he can’t ship anything to customers.

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“I just leave the freshly made stuff here for now,” he said.

Other cities, notably Shanghai, have not announced citywide lockdowns but have at least temporarily closed many neighborhoods, malls and industrial parks to the point that businesses are encouraging employees to work from home as much as possible.

Hour by hour during Monday and Tuesday, the list of companies that announced production halts due to the shutdown grew. Toyota and Volkswagen have stopped assembly plants and other factories in Changchun. Printed circuit board maker, Unimicron Technology, is based in Shenzhen. Global Lighting Technologies, Light Emitting Diode, or LED, Manufacturer in Shanghai.

Some companies, such as Foxconn, have said they will try to shift production to other plants. But Mary E. Lovely, a senior fellow at the Peterson Institute for International Economics, said it seemed “hard to believe” that Foxconn would slack off other facilities that could accommodate its extensive operations near Hong Kong.

Ultimately, Foxconn and other companies will likely prioritize some key customers, such as Apple. “So you’ll see the same thing you’ve seen before, which is that small businesses that rely on these parts and equipment imported from China will be hit,” Ms Lovely said.

You know that China will do everything in its power to control this. The question is which is stronger, the Chinese government or the virus, she said, adding, “We know Omicron is a very strong opponent.”

Anna SwansonAnd the me you And the joi dong Contributed to the preparation of reports and research.