China COVID-19 lockdowns hit factories, ports in latest knock to supply chains

With the COVID-19 outbreak across China, major manufacturers are closing factories, ports are clogging, and workers are scarce as authorities impose city closures and mass testing on a scale unprecedented in nearly two years.

The prospect of continued disruptions in the world’s second-largest economy, which has a zero-tolerance strategy to tackle the pandemic, heightens fears that the disruptions will spill over into the global economy. Already, companies such as memory chip maker Samsung Electronics Co., German automaker Volkswagen AG, and a textile company that supplies Nike Inc. and Adidas AG are suffering from production problems.

Since the end of December, the authorities have taken measures to counter the Covid-19 epidemics in several Chinese cities, including the eastern port of Tianjin, Xi’an in central China and the southern technology hub of Shenzhen. The world’s third-busiest container port, Ningbo-Zhoushan, near Shanghai, risks further delays due to restrictions on trucks and warehouse operations after more than two dozen cases of Covid-19 have been confirmed in the vicinity.

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Chinese authorities are adhering to the same game plan that succeeded in curbing the initial outbreaks of the pandemic and caused intermittent disruptions in production and supply chains.

The potential consequences are more serious this time around, economists warn, due to the highly contagious nature of Omicron, which has been detected in parts of China. The variant is hitting the country as Beijing seeks to contain outbreaks ahead of the Winter Olympics, which are expected to begin on February 4.

“The risk posed by the Omicron variant is that we could take a huge step back in terms of supply chain bottlenecks,” said Frederic Neumann, co-head of Asian economics research at HSBC. “This time around, the situation could be even more difficult than last year given China’s increasingly important role in global supply.”

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Several economists have said China may step up its containment policy and some have touted the possibility of a nationwide lockdown, unheard of since April 2020. Goldman Sachs on Tuesday cut China’s growth forecast for 2022 at 4.3% against 4.8% in light of the latest developments in Covid-19.

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