Corporate China Is Dealing With Supply Issues As COVID Cases Spread

The ripple effect on business is accelerating as China’s massive wave of COVID-19 infections starts its march across a nation roughly the size of Europe.

COVID-19 infections are affecting workers in manufacturing belts, including the Yangtze River Delta, close to Shanghai, as they spread throughout the country from their original epicentre in the north, which includes the capital Beijing.

According to a foreign business organization operating in China, the shortage of workers has particularly hurt the retail and financial services industries, with manufacturers not far behind.

“The retail and client facing sectors are in deep trouble. Obviously, they have limited staff that are available to work because of illness, so many of our large-scale retailers are not even opening their doors,” said Noah Fraser, managing director at the Canada-China Business Council.

Since China abruptly abandoned its zero-COVID policy this month, mass testing has come to an end, and official data no longer accurately records new case counts. Since the start of the pandemic, only 5,241 COVID-19 fatalities have been reported in the nation as of Wednesday.

However, according to some estimates, the wave that is currently sweeping the nation could infect as much as 60% of China’s 1.4 billion people.

“The case counts are starting to creep up outside of the big cities which, of course, means the virus is moving, and we’re going to see further disruption down the line,” Fraser said.

The world’s second-largest economy was already hurt by its efforts to fight infections, as stringent movement restrictions and repeated lockdowns hindered consumption and production, even before COVID-19 infections started hurting businesses in China.

Prior to the lifting of the majority of the COVID curbs at the beginning of December, China’s factory output and retail sales recorded their worst results in six months in November.

In addition to the services sector’s overall weakness, retail sales decreased by 5.9% year over year, and auto production fell by 9.9% after increasing by 8.6% in October.

Leading auto chip manufacturer Renesas Electronics Corp announced last Friday that it would resume production at its Beijing plant on Tuesday in response to COVID-19 infections.

“In a couple of cases companies have shut down either totally their plants or have reduced some of the production,” President of the European Union Chamber of Commerce in China Joerg Wuttke said.

As infections spread among workforces, Wuttke added, China’s “closed loop” system, which isolates workers from the outside world and was relied upon by many factories in China during the zero-COVID era, was starting to fall apart.

“You have to prepare your people to shut it down before they have this fever, which basically clouds their judgment if they are at the machinery, for example.”

Keeping workers with specialized skills on the factory floor in the face of an increase in cases, according to a senior executive at a major automotive manufacturer, is just one of the challenges they face.

“If the truck drivers have problems, then goods cannot be delivered to factories, the factories cannot move cars to the shops, and the whole industry chain is affected,” he said.

A senior manager in the heavy duty truck industry claimed that the dealers he spoke with either had the infection already or were taking care of sick family members.

“Basically, everything has stalled and you cannot make any actual business,” he said. Both executives declined to be identified as they are not authorised to speak to media.

Due to China’s importance in the global supply chain and its role as a major source of sales for many multinational consumer goods companies, any further declines in production output and consumer demand will have an impact that extends well beyond the country’s borders.

Global corporations like Apple, Tesla, Adidas, and Estée Lauder experienced supply chain disruptions as a result of Shanghai’s prolonged lockdown in April and May.

But for the time being, that effect is being curbed in part by global economic hardships that are reducing consumer demand for Chinese goods.\

“Reduced demand in the U.S. and Europe for consumer goods probably hides some of the impact,” said Jonathan Chitayat, the Asia boss of Shanghai-based Genimex Group, a contract manufacturer for a range of consumer products.

The Lunar New Year holiday, during which many factories close for at least a month as workers return to their home towns, is working in manufacturers’ favor as an increasing percentage of the workforce becomes infected in the coming months.

Even though the worst effects of the wave have yet to be seen, some Chinese businesses are optimistic about the future once the initial wave of infections has subsided.

“Most of my clients are up to their eyeballs in debt right now, so all of them are gonna be out trying to entertain people and trying to push deals through,” said Dillon King, co-founder of an import-based food and beverage company.

“I’m optimistic for this year coming up, but definitely feeling the pain of the last few weeks for sure.”

(Adapted from Reuters.com)

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