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After managing a seemingly endless series of crises arising from the pandemic, supply chain managers face a fresh cycle of chaos from a COVID surge in the world’s largest manufacturing economy. And it’s likely to get worse before it gets better. According to a Resilinc special report, due to the abrupt end to the country’s tight COVID-19 restrictions, as much as 60% of China’s population could become infected in the first quarter—that’s over 800 million people.
Compounding the uncertainty is the likelihood that China’s government is under-reporting hospital admissions, ICU patient intakes, and deaths from the COVID surge, according to the WHO. “Health officials abroad have been struggling to work out the scale of the outbreak and how to stop it spreading, with more countries introducing measures such as pre-departure COVID tests for arrivals from China, moves that Beijing has criticised,” reported Reuters on January 4.
While the humanitarian dimensions of this crisis are staggering, supply chains and the companies that rely upon them are also reeling. And for Chinese manufacturers, the COVID surge comes on the heels of declining demand due to the global economic downturn: a month ago, CNBC reported U.S. manufacturing orders in China were down 40% in an “unrelenting demand collapse.”
Other business media have reported that impacts of the slowdown are especially heavy on the tech sector. “China’s tech supply chain is heading into the new year facing the twin challenges of slumping demand and staffing chaos caused by Beijing’s abrupt U-turn on COVID controls,” reported Nikkei Asia last week. “Apple has notified several [Chinese] suppliers to build fewer components for AirPods, the Apple Watch and MacBooks for the first quarter, citing weakening demand.”
Now, workforce shortages in manufacturing and logistics stemming from the government’s abrupt relaxation of COVID curbs are causing delays at ports and trucking hubs, as well as staff shortages at manufacturing plants across at least a dozen sectors, according to Resilinc’s special report. While office workers are reverting to working at home, “factories are becoming thinly staffed as workers call in sick,” reported FT last month.
FT spoke with the head of a printed circuit board factory in Shandong who said only 20% of staff had come to work the prior week while most stayed home sick with Covid. A manager at an auto plant in Hebei told FT the company was reinstating the “closed loop” system in which staff lived on-site during their workweeks.
“Companies have been left with no direction on how to handle the sudden surge in cases, after previously operating under strict guidelines handed down by local governments,” summed up FT. “Factory bosses are now either loosening all controls or isolating workforces to keep production lines functioning.”
Some good news: Reuters cited WHO statements on Jan. 4 to report that “data from China shows that no new coronavirus variant has been found there.”
In terms of the road ahead, experts and observers have a mix of views on how long China’s COVID surge will disrupt supply chains. Nikkei Asia quotes Japanese financial services giant Nomura warning that the late December surge “might be only the beginning of a massive wave of COVID infections.” At the same time, an economist with French investment bank Natixis opined that the “lack of external demand” would be more significant for “China’s manufacturing sector in 2023.”
Some frontline sources interviewed by the publication also took more optimistic views, predicting that infections would run their course and most factories would manage—aided by the curtailed demand from customers. Some even took the outbreak in seemingly easy stride. “There is no big impact on the overall order fulfillment because orders decrease near the end of the year,” said Ding Yi, owner of Wuxi Huansheng Precision Alloy Materials. “I am not that worried.”
Resilinc risk analysts say the fresh turmoil in China underscores the need for companies to develop robust supply chain risk management programs. With visibility through multiple tiers, include part-site mapping, and real-time event monitoring, disruptions of this nature can be more effectively managed. In the longer term, they recommend investigating options to regionalize supply chains to make them less dependent on China as well as nearshoring, reshoring and ally-shoring—with careful consideration of the costs and lost efficiencies that can come with moving supply chains away from China.
