Constituent policy

China’s strict zero-COVID policy is creating supply chain chaos

China’s zero-COVID policy, which has led to long lockdowns in major cities and the suspension of operations in factories, businesses and schools, further weighs on the country’s overall economic growth.

The country’s economic figures continue to paint a grim picture of the government’s policy of eliminating all cases of coronavirus. From new car sales to high-tech equipment to major exports, the continued shutdowns are hitting many sectors of China’s economy.

Shanghai saw no car sales last month as nearly all dealerships were closed during the city’s sudden lockdowns, according to a statement from the Shanghai Automobile Sales Trade Association posted on its social media account on May 16.

Overall, auto sales in China fell 31.6% in April from a year ago, according to official figures.

The loss doesn’t just seem to be in monthly sales. Tu Le, founder of Beijing-based consultancy Sino Auto Insights, told VOA that China’s auto manufacturing industry is facing a bigger supply chain crisis due to labor shortages. and components across the country.

“There are currently two major problems: production has stopped at many local factories and customers cannot buy cars. If people can’t buy cars, market dynamics will be hit hard. The whole (automotive) supply chain is in crisis,” Tu said.

Shanghai plays a vital role in China’s automotive industry. The city ranks first in overall auto production, with nearly 3 million new vehicles produced in 2021. This accounts for 10.9 percent of the nation’s auto production, according to statistics from the country’s automakers association.

Shanghai authorities have announced they will allow more businesses to resume normal operations from early June after nearly two months of lockdown, but Tu remains concerned about unpredictable lockdowns affecting the future of the auto industry. Chinese.

“Uncertainty will persist until COVID is completely or almost completely eliminated from China,” Tu said.

Workers stand near an entrance to Peking University’s Wanliu campus on May 17, 2022 in Beijing.

The story is similar with high-tech products.

Several major Taiwanese computer makers with factories in Shanghai, including Quanta Computer, Compal Electronics, Wistron, Inventec and Pegatron, reported a double-digit year-over-year decline in April revenue due to suspension of factory lines during shutdowns.

During Quanta Computer’s first-quarter earnings conference call on May 13, Vice Chairman and President CC Leung said the company’s production in April was down 40% from a year ago in due to supply chain issues in Shanghai, Yahoo Finance reported. Leung expected production to decline 20% year-over-year in the second quarter.

Chien-Chun Huang, head of the Mainland China Business Division at the China National Federation of Industries in Taipei, told VOA that the impact of China’s zero COVID policy on the electronics industry is expected to increase over the next two next quarters.

“The biggest problem is the mobility of people, that is to say that the limitation of the movement of personnel in the different cities is still quite strict. Even if there is a way to resume work, the workers cannot go to the factory, so the goods cannot be produced,” Huang said.

Wu Jialong, an economist from Taipei, told VOA that as long as China sticks to the zero COVID policy, businesses will have no choice but to operate with limited capacity.

“Companies have problems transporting raw materials. Even if you have inventory, they still struggle to ship finished products to consumers,” Wu said.

China’s pandemic policy is also hurting businesses in other countries. Japanese automaker Toyota said on Tuesday the company would introduce production pauses at 10 Japan-based factories due to parts shortages caused by the lockdown in Shanghai.

Treasury Secretary Janet Yellen testifies before the Senate Banking, Housing, and Urban Affairs Committee hearing, May 10, 2022, on Capitol Hill in Washington.

Treasury Secretary Janet Yellen testifies before the Senate Banking, Housing, and Urban Affairs Committee hearing, May 10, 2022, on Capitol Hill in Washington.

US Treasury Secretary Janet Yellen said last week that COVID lockdowns in China appear to be hampering the movement of goods and hampering the global supply chain. She warned that China’s slowing economy could affect other countries.

Due to the strict containment measures and supply chain deadlock, more and more foreign companies are reconsidering their investments in China.

A survey released earlier this month by the European Union Chamber of Commerce in China showed that 23% of respondents are now considering moving their current or planned investments out of China to other markets due to the China’s COVID policy. This number has more than doubled since the start of 2022 and is the highest proportion in the last decade.

Tech giant Apple has offered to ramp up production in India and Vietnam to reduce its dependence on China, according to a the wall street journal May 21 report. Currently, more than 90% of Apple products are made in China by outside contractors.

Residents line up for a mass COVID test on May 16, 2022 in Beijing.

Residents line up for a mass COVID test on May 16, 2022 in Beijing.

With competitive labor costs, Vietnam and other Southeast Asian countries are benefiting from a shift in global supply chains. Vietnam recorded a 19% growth in exports last year and is becoming a key exporter of electronic and computer components.

Nick Marro, head of global trade at The Economist Intelligence Unit, said multinational companies should focus on expanding into Southeast Asia as China won’t abandon its zero COVID policy anytime soon.

“We don’t expect China to abandon its zero-COVID stance before the Party Congress in the fall, with a gradual move away from these protocols unlikely until 2023,” Marro told VOA in an e-mail. -mail. “This means that the risk of future and sudden shutdowns, production suspensions, mass testing and other disruptions will persist for some time.”