China’s Zero-Covid Policy Strains Global Supply Chain

China’s zero-covid policy causes highways and ports to become clogged and factories shut. Production and transport disruptions in the country ripples through global supply chains for goods from electric vehicles to consumer electronics. While some factories try to get through the crisis with “closed loop” management that keeps workers isolated inside, it is hard to sustain given the government’s harsh measures to wipe out the Omicron variant.

Foxconn Interconnect Technology that makes data transmission equipment and connectors, keeps a plant open near Shanghai in a closed loop but is only able to run at 60% capacity.

More than 30 Taiwanese companies on Wednesday said Covid measures in Eastern China had forced them to suspend production until at least next week.

On Tuesday, Bosch announced suspension at two of its plants and put two other under closed loop operation. Taiwan’s Pegatron Corp. also had to halt operations at two sites.

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 becoming hard to manage given the extreme infectiousness of the less-deadly Omicron variant.

The zealous approach has made localized curbs extend far beyond virus hotspots Shanghai and Jilin provinces. 87 of China’s 100 largest cities by GDP have imposed some form of quarantine.

Truck transport has also been hit hard as long queues and delays drive prices up. Booking a truck from Shandong to Shanghai more than quadrupled from 7,000 yuan to 30,000 yuan.

Foreign businesses raised their concerns as the European Chamber of Commerce in China sent a letter to the government last week highlighting that about half of German firms in the country were experiencing supply chain problems.

China has tried to ease the impact of the curbs by keeping ports and airports open and encouraging closed loop production. Still, the number of container vessels off Shanghai, the world’s largest container port, and Zhoushan has more than doubled since the beginning of April and tripled from a year ago.

Maersk recommended clients to divert shipments from the congested Shanghai port to other Chinese ports.

Growth forecasts for the country have been cut amid disruptions. Beijing has set a 5.5% growth target for 2022.

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