China’s Covid lockdowns set to further disrupt global supply chain

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China’s Covid lockdowns set to further disrupt global supply chain

BEIJING – Trucks are delayed by drivers’ tests. Container rates are rising as ships have to wait for several hours at ports. Products piled up in warehouses.

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

Cases rose to more than 5,000 new infections across the country on Tuesday. This number is small compared to many other large countries. But China has taken a zero tolerance approach to outbreaks that calls for stringent lockdowns as well as mass testing and quarantines in government facilities. As many of the country’s largest industrial cities are now fighting the outbreak, such measures are taking a toll on the factory and transportation networks that are the backbone of China’s manufacturing.

Officials in Beijing and a long list of cities and provinces say the virus is still spreading and the government must take strict measures to stop it.

“Recently, local cluster epidemics have occurred in many places in our country, mainly the Omicron variant, which has spread rapidly and is very hidden,” Mi Feng, spokesman for the National Health and Health Commission, said on Tuesday. “Pandemic prevention and control is more difficult, and the situation is grave and complex.”

In China’s northeast Jilin province, which has a number of recent cases as well as factories making cars and car parts, Zhang Li, a deputy director of the provincial health agency, said residents and officials “must urgently mobilize and Work to overcome difficulties with soaked teeth – we are running against time.”

For some foreign investors, the outbreak may be less troubling than the unpredictability of government measures. “The trade risk in China is now greater than at any time since spring 2020,” said Julian McCormack, president of the British Chamber of Commerce in China.

The lockdown has also suspended work at electronics factories in the south and a wide range of industrial companies in central China. Cities near Shanghai have closed highway exits or demanded that every driver show a negative PCR test – a requirement that has also created miles-long lines of trucks trying to move critical components between factories. Huh.

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High international freight costs, a serious problem that contributed to inflation in the United States last year, have begun to climb again after falling during the Chinese New Year holiday last month.

The cost to ship a container of goods from Asia to the US West Coast reached $16,353 as of last Friday, before the latest coronavirus restrictions were in effect, compared to $16,155 a week ago. According to data from freight booking platform Freightos, rates have nearly tripled compared to a year ago and have gone up 12 times compared to two years ago.

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

But with truck traffic disrupted at the docks, ships are facing delays at ports of at least 12 hours, and may soon have to wait up to two weeks, said Julie, chief executive of Everstream Analytics, a supply chain analysis firm. Gerdman said. ,

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

Airfreight is also facing fresh complications. China’s Civil Aviation Administration said on Tuesday that many of the remaining international flights to Shanghai’s sprawling Pudong airport would be rerouted to other Chinese cities from next Monday until May 1. The measure would free up quarantine rooms in Shanghai for city residents and close contacts, but further delays exports.

At least five large factories have closed completely because of the coronavirus: Dongguan and Shenzhen in southern China, near Hong Kong, where Foxconn has giant factories to make iPhones and other Apple products; Changchun and Jilin cities in northeastern China’s Jilin Province; and Langfang, next to Beijing. Some smaller cities have also gone into lockdown, such as Suifen and Manzauli on China’s border with Russia.

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In Dongguan, an industrial city of 7.5 million people, some factory owners said they were being allowed to work as long as their workers lived in dormitories inside the factory premises, and no one was allowed to go or was not allowed to enter.

Deng Siwen, owner of a small factory that makes packaging materials in Dongguan, said several dozen of his workers were still living and working inside the premises but that he could not ship anything to customers.

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

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

Hour by hour from Monday and Tuesday, the list of companies that have announced to stop production due to the lockdown has grown. Toyota and Volkswagen closed their assembly plants and other factories in Changchun. Unimicron Technology, a printed circuit board manufacturer in Shenzhen. Global Lighting Technologies, a light emitting diode, or LED, manufacturer in Shanghai.

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

Ultimately, Foxconn and other companies will prioritize a few key customers, such as Apple. “So you’re going to see what you saw earlier, which is going to be hit by smaller companies that rely on these imported parts and equipment from China,” Ms. Lovely said.

“You know China is going to do everything possible to get it under control. The question is which is stronger, the Chinese government or the virus,” she said, “We know that Omicron is quite a formidable opponent.”

Anna Swanson, Lee you And joy dong Contributed to reporting and research.

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