{"id":3001,"date":"2022-03-18T03:26:08","date_gmt":"2022-03-18T03:26:08","guid":{"rendered":"https:\/\/worabia.com\/news\/top-trends\/3001\/"},"modified":"2022-03-18T03:26:08","modified_gmt":"2022-03-18T03:26:08","slug":"china-lockdowns-the-economic-cost-of-a-zero-covid-policy","status":"publish","type":"post","link":"https:\/\/worabia.com\/news\/top-trends\/3001\/","title":{"rendered":"China lockdowns: The economic cost of a zero-Covid policy"},"content":{"rendered":"
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War. Inflation. And now, the Covid lockdown deja vu in China. It’s a perfect storm for the global supply chain: how goods and materials from other countries get to you and me.<\/b><\/p>\n<\/div>\n

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When disruptions occur in China, it matters because about a third of global manufacturing capacity is in the country. <\/p>\n<\/div>\n

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If you’re buying something online, there’s a good chance it was made in Shenzhen, a city of 17.5 million in the southeast where about half of all China’s online retail exporters are located.<\/p>\n<\/div>\n

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So when Shenzen entered a six-day lockdown on Sunday after a massive spike in Covid cases, it sent shockwaves through the world’s businesses. Since then, the restrictions have been extended to other major cities and provinces such as Shanghai, Jilin and Guangzhou.<\/p>\n<\/div>\n

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Factories had to suspend production and cities became ghost towns. <\/p>\n<\/div>\n

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The number of ships waiting in some Chinese ports has already increased, according to project44, which monitors how cargo moves around the world. “We saw a 28.5% increase in the number of ships waiting outside the port of Yantian, which is a major export port to Europe and North America,” says Adam Compain, Senior Vice President of project44.<\/p>\n<\/div>\n

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Yantian is the same port that was closed due to Covid last year, leading to significant delivery delays over Christmas.<\/p>\n<\/div>\n

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The new measures come at a time when China’s manufacturing output was just beginning to recover after the Chinese Lunar New Year holiday in February.<\/p>\n<\/div>\n

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While China’s covid measures are drastic, at least most lockdowns don’t last long.<\/p>\n<\/div>\n

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“It’s a double-edged sword,” says Steven Lynch, managing director of the British China Chamber of Commerce. “China is falling apart very quickly, causing major disruptions, but then things will return to normal relatively quickly.”<\/p>\n<\/div>\n

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Companies also appear to be much better prepared this time.<\/p>\n<\/div>\n

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“We’ve seen these lockdowns before, so companies have put strong supply chain management in place,” Lynch explains.<\/p>\n<\/div>\n

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For example, e-commerce giant Amazon bought more China-based inventory to cushion any potential disruption during Omicron’s previous surges, so it doesn’t anticipate a significant disruption from the latest measures.<\/p>\n<\/div>\n

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“We can counteract these closures by diverting available cargo to our neighboring warehouses in the region,” an Amazon spokesman told the BBC.<\/p>\n<\/div>\n

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Another example is Foxconn, which makes iPhones for Apple. It has tried to shift production to other manufacturing sites as it resumes production by asking employees to work in a closed-loop system, or bubble, on its campus where people live and work.<\/p>\n<\/div>\n

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“For Foxconn, it’s probably easier,” says Dan Wang, chief economist at Hang Seng Bank China.<\/p>\n<\/div>\n

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“But for a lot of those growers, they have to rely on shipping from other parts, mostly within the same region, so it’s really hard to move around because shipping within China can be disrupted as well.”<\/p>\n<\/div>\n

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The situation has put a new spotlight on China’s zero-Covid, or virus elimination, strategy. <\/p>\n<\/div>\n

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On Thursday, President Xi Jinping said the country would stick to its policy, but at a meeting of the country’s top leaders, he also stressed that the pandemic measures should not cause economic damage.<\/p>\n<\/div>\n

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If China continues with its Covid zero or near zero strategy, it may be China’s economy and the global consumers it supplies that will feel the real pain. <\/p>\n<\/div>\n

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There are signs that it is enacting longer-term costs, causing some companies to reconsider their positions in the Chinese market.<\/p>\n<\/div>\n

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Alvin Ea, CEO of Singapore’s largest container shipping platform Haulio, believes the industry has become much more resilient in looking to other options besides China.<\/p>\n<\/div>\n

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“A lot of the players have already diversified some of their resources and their plans, so they don’t put all their eggs in one basket,” he says.<\/p>\n<\/div>\n

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“From a Southeast Asian point of view, what we could potentially see is that some of the factories in Vietnam, Malaysia and Indonesia could see an increase in orders.”<\/p>\n<\/div>\n

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Peter Sand, chief analyst at Xeneta agrees.<\/p>\n<\/div>\n

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“Companies’ contingency plans include anything from increasing their inventory holdings to setting up production facilities in neighboring countries, or potentially the more expensive option of bringing manufacturing back closer to where their main customers are,” he says.<\/p>\n<\/div>\n

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Michael Hart of the American Chamber of Commerce in China says several of its members have been thinking about moving operations, though they are still in the minority. <\/p>\n<\/div>\n

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“But of those who have been thinking about moving operations, 22% cited Covid-related restrictions last year, and that was an increase from 5% from the previous year.”<\/p>\n<\/div>\n

Source<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

War. Inflation. And now, the Covid lockdown deja vu in China. It’s a perfect storm for the global supply chain: how goods and materials from other countries get to you and me. When disruptions occur in China, it matters because about a third of global manufacturing capacity is in the country. 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