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ANALYSIS-China’s expanding COVID restrictions threaten global supply chain paralysis


Rrepeats Wednesday’s story with no text changes

SHANGHAI, April 13 (Reuters)China’s race to stop the spread of COVID-19 is clogging highways and ports, locking up workers and closing countless factories – disruptions that ripple through global supply chains for goods ranging from electric vehicles to iPhones.

As some factory owners try to resist with “closed-loop” management that keeps workers indoors in isolation, some said it’s getting harder to maintain given the extent of local COVID-19 restrictions. aimed at avoiding the Omicron variant, complicating efforts to procure materials or ship products.

Foxconn interconnect technology 6088.HKa unit of Foxconn based in Taiwan 2317.TW which makes data transmission equipment and connectors, has kept a factory open in Kunshan, which borders Shanghai, in a closed loop but can only operate at 60% capacity, a person familiar with the matter said.

Foxconn did not respond to a request for comment.

On Wednesday, more than 30 Taiwanese companies, many of which manufacture electronic parts, said COVID-19 measures in eastern China had caused them to suspend production until at least next week.

A day earlier, German auto parts giant Bosch said it had suspended production at its Shanghai and Changchun sites, while putting two other factories into “closed-loop” operation. Also on Tuesday, the Taiwanese company Pegatron Corp 4938.TWwhich assembles Apple Inc AAPL.O iPhones, shutdown of operations in Shanghai and Kunshan.

Sven Agten, Asia-Pacific CEO of Rheinzink, a German manufacturer of zinc building materials, said logistical challenges made a closed loop at its warehouse and manufacturing facilities in Shanghai impossible, and expects to have no no sales in April and possibly May.

“We need someone in the warehouse and in the manufacturing plant to do the job, and we need a truck and a driver. Those are the two key things, and both are impossible. β€œ, 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 infectivity of the less lethal variant of Omicron.

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

On Saturday, the electric vehicle manufacturer Nio 9866.HK said it had to suspend production at its Hefei factory – even though there were no local restrictions – because suppliers from other regions had stopped working.

THE BLUES OF TRUCKERS

Trucking has been hit particularly hard, causing long queues and delays and driving up prices. The normal fee for booking a truck from Shandong province to Shanghai has more than quadrupled from 7,000 yuan ($1,100) to 30,000 yuan, said a trucking company executive who declined to be identified.

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

The city of Xuzhou, logistics hub, on April 8 began requiring truckers to produce negative PCR test results taken within 48 hours for further testing upon arrival. They can’t get out of their trucks.

Some drivers have been stuck on highways after visiting areas like Shanghai, meaning their smartphone health codes have been 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 particularly expressed concern, with the European Chamber of Commerce in China sending a letter to the government Last week noting that about half of German companies in the country were experiencing supply chain issues.

China has tried to cushion the impact of the restrictions by keeping ports and airports operating and encouraging closed-loop manufacturing.

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

Danish shipper Maersk MAERSKb.CO on Monday recommended customers divert from the congested Shanghai port to other Chinese destinations.

Economists have lowered growth forecasts for China due to the disruptions, with Beijing’s official growth target of around 5.5% this year seen as increasingly elusive.

ING last week lowered 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-run clothing embroidery and painting factory in Guangdong province, said since late March he has been unable to ship about 70 to 80 percent of orders because customers cannot receive them.

β€œThe current situation is that the impact of politics is bigger than the epidemic,” he said.

($1 = 6.3651 Chinese yuan renminbi)

(Reporting by Zhang Yan and Josh Horwitz in Shanghai, Martin Quin Pollard in Beijing and Yimou Lee in Taipei, Additional reporting by Gavin Maguire in Singapore; Writing by Brenda Goh; Editing by Tony Munroe and Kim Coghill)

(([email protected]; +86 (0) 21 2083 0088; Reuters Messaging: [email protected]))

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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