Tumultuous times for global supply chain as China’s COVID situation turns bad to worse

The world’s biggest manufacturing and supply chain hub – China – was closed for a long period of time as it implemented the zero-COVID regulations, and opened only a few weeks ago. For almost 2 years, its manufacturing and supply chain infrastructure was operating at bare minimum, causing major problems in global supply chain, especially for the technology industry.

Barely a month after Beijing decided not to order any more lockdowns, the nation has been struggling to control its COVID-19 cases. Eric Feigl-Ding, an Epidemiologist and health economist in China, recently posted about the austerity of the situation in China on Twitter. He repeatedly called the situation ‘thermonuclear bad’.

For a global supply chain which is already struggling to find a stable standing amid the geopolitical conditions and the aftershocks of initial COVID waves, this comes as a severe threat. China lifting its COVID related restrictions may have initially bought some level of respite to supply chains in the form of some recovery to the factories’ capacity, export and pressure relief to the workers. However, as the number of cases multiple by the hour, it’s expected to do more bad than good.

“If the number of COVID cases in China rises significantly over the next months, the workforce availability will be impacted, and the authorities could tighten the control measures. Hence, in the near term, China’s supply chain might be subjected to some disruptions before it stabilizes towards mid-2023.”

Teh Leng Tan, Senior Director, Gartner

China’s role in smooth functioning of global supply chains is not incognito. In the last two years, many key tech commodities – from networking kit to memory, smartphones and semiconductors – became harder to find, pushing up prices and making finished products hard to get, all across the world.

Recently, the boss of a printed circuit board factory in the eastern Chinese province of Shandong said that only 20% staff came to work on Friday, the rest calling in sick with COVID. “One after another tested positive. I’m worried that I will have to shut the factory down.”

The IMF has already reported of global economic slowdown from 6% in 2021 to 3.2% in 2022 and further to 2.7% in 2023, and the rampant menace created by the pandemic may just make things worse.

China’s more relaxed policies mean shutdowns may be off the agenda. But it is foreseeable that tens or even hundreds of thousands of workers in China’s dense megacities will be absent with illness in coming weeks and months.

Ding, in his series of tweets, also said that if the West feels there is a shortage of fever drugs and antibiotics right now, the situation is set to worsen multifold as China’s pharma production will be diverted from exports to be used domestically. He posted a video showing people rushing to a pharmaceutical factory to buy ibuprofen because it is completely sold out elsewhere.

Though China has decided to stay open even as infections spread, resuming production or work at supply chain hubs (ports, airports etc.) will neither be feasible nor favourable for organisations. Currently, the pandemic sweeping across China is causing widespread business disruption as staffing shortages threaten to close down factory production lines and truck drivers fall ill, bringing chaos to supply chains. As it is, manufacturers and shippers are already looking at nearshoring and reshoring alternatives.

According to a new survey released by tech company Capterra, 88% of small and midsize businesses (SMBs) plan to or are currently switching at least some of their suppliers closer to the U.S. in 2023 following years of logistics headaches.

China is the world’s largest producer and exporter of consumer goods. Disruptions across the Chinese manufacturing sector are likely to impact the global supply chain of goods and the world’s economy as a whole. 

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