As a massive wave of Covid-19 infections spreads across China, the world’s second largest economy, the ripple effect on businesses is accelerating.
“In a couple of cases companies have shut down either totally their plants, or have reduced some of the production,” President of the European Union Chamber of Commerce in China Joerg Wuttke said.
One example is leading automobile chipmaker Renesas Electronics, which suspended production at its Beijing plant last Friday due to Covid-19 infections. But it said it would re-open on Tuesday.
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China’s “closed loop” system, where employees are isolated from the wider world, and which had been relied on by many factories throughout the zero-Covid era, is also beginning to fall apart as infections creep into workforces, Wuttke added.
“You have to prepare your people to shut it down before they have this fever, which basically clouds their judgment if they are at the machinery, for example.”
A senior executive at a large automotive manufacturer said keeping workers with specialist skills on the factory floor amid a surge in cases was just one of the issues they face.
“If the truck drivers have problems, then goods cannot be delivered to factories – the factories cannot move cars to the shops, and the whole industry chain is affected,” he said.
A senior manager, working in the heavy-duty truck sector, said dealers he spoke to were either already infected, or caring for sick family members.
“Basically, everything has stalled and you cannot make any actual business,” he said.
Caution and optimism
Retail and financial services businesses in China have also been hard hit by a shortage of staff.
“The retail and client-facing sectors are in deep trouble. Obviously, they have limited staff that are available to work because of illness, so many of our large-scale retailers are not even opening their doors,” Noah Fraser, managing director at the Canada-China Business Council, said.
China’s position as a key cog in the global supply chain, as well as a major driver of sales for many global consumer goods companies, means further hits to production output and consumer demand will be felt far beyond its borders.
Shanghai’s extended lockdown in April and May caused disruption to the supply chains of multinationals including Apple and Tesla.
For now, however, that impact is being limited in part by economic hardships elsewhere in the world denting demand for products from China.
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“Reduced demand in the US and Europe for consumer goods probably hides some of the impact,” said Jonathan Chitayat, the Asia boss of Shanghai-based Genimex Group, a contract manufacturer for a range of consumer products.
With mass testing halted after China abruptly dropped its zero-Covid policy this month, official data no longer reliably captures new case numbers. But some analysts predict the current Covid wave could infect up to 60% of China’s 1.4 billion-strong population, and cause at least one million deaths.
“The case counts are starting to creep up outside of the big cities which, of course, means the virus is moving, and we’re going to see further disruption down the line,” Fraser added.
Even though the worst effects of the wave are still to emerge, some businesses in China remain relatively upbeat about the future, once the initial wave of infections subsides.
“Most of my clients are up to their eyeballs in debt right now, so all of them are gonna be out trying to entertain people and trying to push deals through,” said Dillon King, co-founder of an import-based food and beverage company.
“I’m optimistic for this year coming up, but definitely feeling the pain of the last few weeks for sure.”
- Reuters, with additional editing by Vishakha Saxena
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