Companies are bracing for another round of potentially debilitating supply chain disruptions as China, home to about one-third of global manufacturing, imposes sweeping lockdowns in an attempt to keep the omicron variant at bay.
The measures have confined tens of millions of people to their homes in several Chinese cities and contributed to a suspension of connecting flights through Hong Kong from much of the world for the next month. At least 20 million people, or about 1.5% of China’s population, are in lockdown, mostly in the city of Xi’an in western China and in Henan province in north-central China.
The country’s zero-tolerance policy has manufacturers — already on edge from spending the past two years dealing with crippling supply chain woes — worried about another round of shutdowns at Chinese factories and ports. Additional disruptions to the global supply chain would come at a fraught moment for companies, which are struggling with rising prices for raw materials and shipping along with extended delivery times and worker shortages.
China used lockdowns, contact tracing and quarantines to halt the spread of the coronavirus nearly two years ago after its emergence in Wuhan. These tactics have been effective, but the extreme transmissibility of the omicron variant poses the biggest test yet of China’s system.
So far, the effects of the lockdowns on Chinese factory production and deliveries have been limited. Four of China’s largest port cities — Shanghai, Dalian, Tianjin and Shenzhen — have imposed narrowly targeted lockdowns to try to control small omicron outbreaks. As of this past weekend, these cities had not locked down their docks. Still, Volkswagen and Toyota announced last week that they would suspend operations in Tianjin because of lockdowns.
If lockdowns become more widespread, their effects on supply chains could be felt across the United States. And major new disruptions could exacerbate inflation, which is at a 40-year high.
“Will the Chinese be able to control it or not I think is a really important question,” said Craig Allen, president of the U.S.-China Business Council. “If they’re going to have to begin closing down port cities, you’re going to have additional supply chain disruptions.”
Source : Economic Times
