China’s lockdowns spur concern over supply chain, freight impact

Several companies in China’s manufacturing centres in both the south and northeast have halted operations amid the most sweeping COVID-19 lockdowns in the country since the start of the pandemic in Wuhan.

China, on Tuesday, reported more than 5,000 COVID-19 cases, the highest since early 2020, and the country this week locked down the entire province of Jilin in the northeast – the first such lockdown of an entire province since Hubei, where Wuhan is located, was closed off from the rest of the country in 2020.

Jilin is a manufacturing hub particularly for automobile companies, and carmakers Toyota and Volkswagen said they had suspended production in the capital, Changchun.

The current surge fuelled by the Omicron variant has spread across many cities in China and 19 out of 31 provinces have reported cases. In southern Guangdong province, two cities key to the economy, tech hub Shenzhen and manufacturing centre Dongguan, have both been put under lockdown.

Apple supplier Foxconn said it had suspended operations in its Shenzhen facility. Langfang, in northern Hebei province, which houses a facility of Foxconn’s Hon Hai Precision Industry company, has also announced a lockdown. The measures mean workers will have to stay home and production will remain suspended. The Taiwanese electronics manufacturer said it was looking to divert production to other facilities on the mainland, but with the spread of the current surge, those options are likely to narrow.

China largely managed to keep supply chains functioning normally through much of 2020 – once it curbed the initial outbreak by the summer – and also throughout 2021, when a “zero COVID” strategy, that relied on international travel restrictions as well as testing and tracing to quickly quash outbreaks, helped the Chinese economy record a robust export performance while much of the world remained caught in cycles of lockdowns. China avoided a major second wave unlike much of the world.

How the current surge impacts China’s supply chains and industrial production will add to the concerns of its major trading partners, including India, which are already preparing to deal with the spillover impacts of Russia’s war in Ukraine.

A particular concern is the impact on China’s major ports. Shanghai, the world’s largest, has imposed lockdowns in several neighbourhoods but the port was maintaining normal operations as of Tuesday. Shenzhen, another major port, is also operating although the city itself has been placed under lockdown.

If lockdown restrictions spread, affecting access to the ports as well as workers, as happened in 2020 when COVID-19 measures led to record queues for container ships, analysts fear freight may see a disruption, leading to both bottlenecks and rising freight costs as was seen then.

The current surge has certainly posed the biggest test yet to China’s elimination strategy, although the official media has made clear that the “dynamic zero COVID” strategy is here to stay and China is not likely to open up anytime soon.

“China has already found an approach to dynamically stamp out COVID-19 infections while maintaining the country’s economic vitality,” the official Xinhua news agency said in a commentary on Tuesday.

“It saw a strong rebound with 8.1% growth in 2021 and became the only major economy to record growth in 2020. Thanks to this policy, China, the second-largest economy and major supplier of many manufactured goods, could provide key manufactured products to the world, including goods badly needed by many countries in fighting the pandemic,” it added.