China’s Covid; Corporate struggles with supply as COVID cases spread
21 December, Shanghai/Beijing (Reuters) – The rippling effect on business is intensifying as China’s COVID-19 big wave of infections starts its march over a nation approximately the size of Europe.
COVID-19 infections are affecting workers in manufacturing belts, notably the Yangtze River Delta, close to Shanghai, as they spread throughout the country from their original epicentre in the north, which includes the capital Beijing.
According to a foreign business organisation operating in China, the shortage of workers has particularly hurt the retail and financial services industries, with manufacturers not far behind.
“The retail and customer-facing industries are in dire straits. Many of our large-scale stores aren’t even opening their doors because they have a restricted number of staff members who are available to work due to illness “Managing director of the Canada-China Business Council Noah Fraser stated.
Since China abruptly abandoned its zero-COVID policy last month, mass testing has come to an end, and official data no longer accurately records new case counts. Since the start of the pandemic, only 5,241 COVID-19 fatalities have been documented in the nation as of Wednesday.
However, according to some estimates, the wave that is currently sweeping the nation might infect as much as 60% of China’s 1.4 billion people.
The number of cases is beginning to rise outside of the major cities, which naturally indicates that the virus is spreading and that there will be more disruption in the future, according to Fraser.
The world’s second-largest economy was already hurt by its efforts to fight infections, as stringent travel restrictions and recurrent lockdowns hindered consumption and manufacturing, even before COVID-19 infections started hurting businesses in China.
Prior to the relaxation of the majority of the COVID limitations at the beginning of December, China’s manufacturing output and retail sales recorded their worst results in six months in November.
In addition to the services sector’s overall downturn, retail sales decreased by 5.9% year over year, while vehicle production plummeted by 9.9% after increasing by 8.6% in October.
Leading automotive chipmaker Renesas Electronics Corp (6723.T) announced last Friday that it would resume operations on Tuesday after halting production at its Beijing plant owing to COVID-19 infections.
According to Joerg Wuttke, president of the European Union Chamber of Commerce in China, “in a few cases enterprises have shut down either completely their operations or have decreased some of the production.”
As illnesses spread among workforces, Wuttke continued, China’s “closed loop” system, which isolates workers from the outside world and was depended upon by many enterprises in China during the zero-COVID era, was starting to come apart.
Before they develop this fever, which essentially impairs their judgement if they are operating machinery, for example, you must train your staff to shut it down.
Keeping personnel with specialised skills on the factory floor in the face of an increase in cases, according to a top executive at a major automobile manufacturer, is just one of the challenges they confront.
“If there are issues with the truck drivers, then items cannot be delivered to manufacturers, factories cannot get automobiles to stores, and the entire industry chain is affected,” he said.
A senior manager in the heavy duty truck industry claimed that the dealers he spoke with either had the infection already or were taking care of sick family members.
In essence, he stated, “everything has stalled and you cannot create any real business.” Due to their lack of authorization to speak to the media, both executives declined to give their names.
Due to China’s importance in the global supply chain and its role as a major source of sales for many multinational consumer goods companies, any further declines in production output and consumer demand will have an impact that extends well beyond the country’s boundaries.
The prolonged lockdown in Shanghai in April and May disrupted the supply chains of international companies like Apple (AAPL.O), Tesla (TSLA.O), Adidas (ADSGn.DE), and Estée Lauder (EL.N).
But for the time being, that effect is being curbed in part by global economic problems that are reducing consumer demand for Chinese goods.
According to Jonathan Chitayat, Asia director of Shanghai-based Genimex Group, a contract maker for a variety of consumer goods, “reduced demand in the U.S. and Europe for consumer goods certainly covers part of the damage.”
As more employees contract illnesses in the upcoming months, manufacturers will benefit from the Lunar New Year vacation, when many facilities close for at least a month as employees return to their hometowns.
Some enterprises in China are nevertheless optimistic about the future even though the wave’s harshest impacts have not yet materialised.
According to Dillon King, co-founder of an import-based food and beverage firm, “the majority of my clients are up to their eyeballs in debt right now, so all of them are going to be out trying to entertain people and attempt to push agreements through.”
I have high hopes for the new year, but I can’t deny that I still feel the hurt from the previous few weeks.