China’s widening COVID restrictions threaten global supply chain paralysis

© . FILE PHOTO: A worker in a protective suit walks at an entrance to a tunnel leading to the Pudong area across the Huangpu River, following restrictions on highway traffic during the lockdown to prevent the spread of the coronavirus disease (COVID-19) in Shanghai SHANGHAI () – China’s race to stop the spread of COVID-19 clogs highways and ports, strands workers and shuts countless factories – disruptions rippling through global supply chains for goods ranging from electric vehicles to iPhones. While some factory owners are trying to work it out through “closed loop” management that keeps workers isolated inside, some said it’s getting harder to sustain given the magnitude of local COVID-19 restrictions aimed at Omicron variant, which complicates efforts to purchase materials or ship products. Foxconn Interconnect Technology, a unit of Foxconn of Taiwan that makes equipment and connectors for data transmission, has opened a factory in Kunshan, which borders Shanghai, in a closed loop but can only run at 60% capacity, a well-known with the matter said. Foxconn did not respond to a request for comment. On Wednesday, more than 30 Taiwanese companies, many of which make electronics parts, said COVID-19 measures in eastern China had forced them to suspend production until at least next week. A day earlier, German auto parts giant Bosch said it has halted production at sites in Shanghai and Changchun, while placing two other plants under “closed-loop” operation. Also on Tuesday, Pegatron Corp, Taiwan, which assembles Apple Inc (NASDAQ:) iPhones, shut down operations in Shanghai and Kunshan. Sven Agten, Asia-Pacific CEO of Rheinzink, a German manufacturer of zinc construction materials, said logistical challenges are making a closed loop unworkable at its warehouse and manufacturing facilities in Shanghai, and expects no sales in April and possibly May. “We need someone in the warehouse and production facility to do the job, and we need a truck and a driver. These are the two main components, and both are impossible,” he told . CHART – Container ships crowd out key ports near Shanghai https://fingfx.thomsonreuters.com/gfx/ce/zjvqkdbzdvx/ContainerCongestionMapApr132022.png China’s zero-tolerance approach to COVID-19 despite low case count and even like the rest of the world trying to live with the coronavirus proves impractical given the extreme contagiousness of the less lethal Omicron variant. The zeal to shut down virus transmission chains means that localized curbs extend far beyond the virus hotspots of Shanghai and Jilin in the northeast. An April 7 survey by Gavekal Dragonomics found that 87 of China’s 100 largest cities by GDP have imposed some form of quarantine restrictions. On Saturday, electric vehicle manufacturer Nio (NYSE:) said it had to suspend production at its Hefei plant – even though there were no curbs at the local level – because suppliers from other areas had halted work. TRUCKERS’ BLUES Truck transport has been particularly hard hit, resulting in long queues and delays and higher prices. The normal rate for booking a truck from Shandong province to Shanghai had more than quadrupled from 7,000 yuan ($1,100) to 30,000 yuan, said a truck company executive who declined to be identified. “It has become extremely difficult for our company in the past two weeks to find available trucks near Shanghai as many truck drivers were either stuck on the highways or locked up in the cities,” he said, adding that he outsources orders – against a loss – to keep goods moving. The city of Xuzhou, a logistics hub, began requiring truck drivers to produce negative PCR test results within 48 hours on April 8 in order to take more tests upon arrival. They can’t leave their trucks. Some motorists have become stuck on highways after visiting areas like Shanghai, automatically invalidating their smartphone health codes. Last week, state media reported on a truck driver who lived in his truck for seven days after traveling to Shanghai. CLOGGED PORTS, GLOBAL IMPACT Foreign business groups in particular have expressed concern. The European Chamber of Commerce in China sent a letter to the government last week noting that about half of German companies in the country were experiencing supply chain problems. China has tried to mitigate the impact of the curbs by keeping ports and airports running and encouraging closed production. But the number of container ships waiting at Shanghai — the world’s busiest container port — and nearby Zhoushan has more than doubled to 118 since early April, nearly three times the number a year ago, Refinitiv data shows. CHART – Container congestion worsens major ports in eastern China https://fingfx.thomsonreuters.com/gfx/ce/klvykjwymvg/ContainerCongestionEasternChinaApr132022.png Danish shipper Maersk advised customers to divert from the crowded port of Shanghai to other Chinese destinations on Monday . Economists have lowered growth forecasts for China in the face of such disruptions, with Beijing’s official growth target of about 5.5% this year being seen as increasingly difficult to achieve. ING last week lowered its GDP forecast for China from 4.8% previously to 4.6%. On Wednesday, China’s chief economist Iris Pang warned that the COVID crisis in China could affect growth rates around the world. “A problem in China could be a problem for the global economy,” she said. Chen Xin, who runs a family-owned embroidery and garment dye factory in Guangdong province, said he has been unable to ship about 70-80% of orders since late March because customers are unable to receive them. “The current situation is that the impact of the policy is greater than the epidemic,” he said. ($1 = 6,3651 renminbi)

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