China’s widening COVID curbs threaten global supply chain paralysis By Reuters

SHANGHAI (Reuters) -China’s race to stop the spread of COVID-19 is clogging highways and ports, stranding workers and shutting countless factories – disruptions that are rippling through global supply chains for goods ranging from electric vehicles to iPhones.

While some factory owners try to tough it out through “closed loop” management that keeps workers isolated inside, some said that is becoming harder to sustain given the extent of local COVID-19 curbs aimed at heading off the Omicron variant, complicating efforts to procure materials or ship products.

Foxconn Interconnect Technology, a unit of Taiwan-based Foxconn that makes data transmission equipment and connectors, has kept a plant open in Kunshan, which borders Shanghai, in a closed loop but is only able to run at 60% of capacity, a person familiar with the matter said.

Foxconn did not respond to a request for comment.

On Wednesday, more than 30 Taiwan companies, many making electronics parts, said that COVID-19 measures in eastern China had led them to suspend production until at least next week.

A day earlier, German auto parts giant Bosch said it suspended output at sites in Shanghai and Changchun, while putting two other plants under “closed-loop” operation. Also on Tuesday, Taiwan’s Pegatron Corp, which assembles Apple Inc (NASDAQ:) iPhones, halted operations in Shanghai and Kunshan.

Sven Agten, Asia Pacific CEO of Rheinzink, a German maker of zinc construction materials, said logistical challenges make a closed-loop unworkable at his Shanghai warehouse and manufacturing facilities, and expects to have zero sales during April and possibly May.

“We need somebody in the warehouse and the manufacturing facility to do the work, and we need a truck and a driver. These are the two key components, and both are impossible,” he told Reuters.

China’s zero-tolerance approach to COVID-19, despite low case numbers and even as the rest of the world tries to live with the coronavirus, is proving unwieldy given the extreme infectiousness of the less-deadly Omicron variant.

The zeal to cut-off virus transmission chains means localised curbs extend far beyond virus hotspots Shanghai and Jilin province in the northeast. An April 7 study by Gavekal Dragonomics found that 87 of China’s 100 largest cities by GDP have imposed some form of quarantine curbs.

On Saturday, electric vehicle maker Nio (NYSE:) said it had to suspend production at its Hefei factory – even though there were no local-level curbs – because suppliers from other areas had stopped work.

TRUCKERS’ BLUES

Truck transport has been especially hard hit, causing long queues and delays and driving up prices. The normal rate to book a truck from Shandong province to Shanghai had more than quadrupled from 7,000 yuan ($1,100) to 30,000 yuan, said an executive at a trucking firm who declined to be identified.

“It has become extremely difficult for our company to find available trucks near Shanghai in the past two weeks as many truck drivers were either stuck on the highways or locked down in the cities,” he said, adding that he was subcontracting orders – at a loss – to keep goods moving.

The city of Xuzhou, a logistics hub, on April 8 began requiring truck drivers to produce negative PCR test results taken within 48 hours to take more tests upon arrival. They cannot exit their trucks.

Some drivers have become stuck on highways after visiting areas like Shanghai, which meant their smartphone health codes were automatically invalidated. 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 have been especially vocal about their concerns, with the European Chamber of Commerce in China sending a letter to the government last week noting that about half of German firms in the country were experiencing supply chain problems.

China has tried to cushion the impact of the curbs by keeping ports and aiports running and encouraging closed-loop manufacturing.

But the number of container vessels waiting off Shanghai – the world’s busiest container port – and nearby Zhoushan has more than doubled since the start of April to 118, nearly three times the number a year ago, Refinitiv data showed.

Danish shipper Maersk on Monday recommended to clients that they divert from congested Shanghai port to other Chinese destinations.

Economists have cut growth forecasts for China on the back of such disruptions, with Beijing’s official growth target of around 5.5% this year seen as increasingly difficult to reach.

ING last week downgraded its GDP forecast for China to 4.6% from 4.8% previously.

On Wednesday its chief economist for China, Iris Pang, warned that China’s COVID crisis could impact 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 painting factory in Guangdong province, said that since late March he has been unable able to ship roughly 70-80% of orders because customers can’t receive them.

“The current situation is, the impact of the policy is greater than the epidemic,” he said.

($1 = 6.3651 renminbi)