After three years of “zero Covid” economic turmoil, many Chinese businesses woke up to a happy new reality in December: No more restrictions.
But before they can take advantage, business owners in the world’s second-largest economy say, they need to get their supply chains in order after a troubled time capped by this sharp turnaround – and weather a sweeping wave of Covid-19 cases worker classes.
“Everyone got sick almost at the same time,” said Hong Binbin, director of toy maker Shenzhen Jiaoyang Industrial Co., describing an outbreak of Covid in early December that wiped out 90 percent of his staff in two weeks. A labor shortage forced him to delay a shipment of custom toys to a South Korean customer to a January delivery date from the original Dec. 25.
Mr Hong, who contracted the virus himself in late December, said he felt helpless and frustrated by the lack of warning and follow-up guidance on the lifting of strict Covid restrictions. Now, he worries that customers, fearing a wave of reinfections in the southern metropolis of Shenzhen, may hold back orders.
Since China’s last major restrictions were lifted on December 7, the pandemic has spread rapidly across the country. Businesses describe being unprepared for the sudden end to widespread testing, mass quarantines and city lockdowns, and labor shortages that followed as workers fell ill.
Activity in manufacturing and services fell in December to their lowest levels since February 2020, when the virus first spread across the country, the government said on Saturday. Economists say these struggles could ripple through supply chains and affect the global economy.
“The world is connected through China-centric supply chains,” said Stephen Roach, senior fellow at Yale University and former chairman of Morgan Stanley for Asia..
“Any ‘twist’ in these chains spells trouble for global production and the global economy.”
However, the prospect of a large number of cases in January – a time of year when business activity is disrupted anyway by the Lunar New Year holiday – has many in the manufacturing and service sectors optimistic that normalcy could only come early February .
“It sounds strange, I think it’s more helpful than harmful,” said Andreas Nagel, Shanghai-based chief commercial officer at Stulz, a maker of climate control equipment that was hit in December by a wave of Covid-related absenteeism. “We have a real chance of getting back to normal after Chinese New Year.”
Restrictions are being eased as overseas demand for Chinese-made goods stagnates, with November exports falling from a year earlier at the steepest pace in more than two years. Philip Richardson, owner of Trueanalog Strictly OEM, an audio equipment manufacturer in Panyu, just outside the southern manufacturing hub of Guangzhou, said his company was facing a double whammy: disruption caused by Covid and a painful downturn in the business cycle. the supply chain.
Overseas customers are generally overcrowded after China’s supply chain bottlenecks finally opened earlier in 2022, said Mr. Richardson, who has been in China for more than two decades.
In the absence of mass testing, it is difficult to track the progress of the virus. But conversations with business owners scattered across the country suggest it spread rapidly in northern China in early December before moving to Shanghai and southern China. Hospitals were filled with mostly elderly patients, while people of working age could mostly recover after a week or so.
In the central city of Zhengzhou, Apple workers Inc
largest iPhone contract manufacturer, Foxconn Technology Group;,
have described a relatively quick spread of the virus through the workforce, although analysts and people involved in the supply chain believe production is starting to meet demand for the more expensive Pro models.
Many factories, hit by waves of infections, simply brought to the fore scheduled production halts for the Lunar New Year.
Xie Haifeng, a 38-year-old forklift operator in Shanghai who says half his team is sick with the virus, said he would return to his hometown in nearby Jiangsu province earlier than usual to celebrate the holiday. His employer, Yanfeng Global Automotive Interiors Co., which supplies parts for Tesla Inc.
and other automakers, plans to let workers walk five days before the official start of the weekly vacation on Jan. 21.
The labor crisis also affects the service sector. Shanghai Disneyland said its theme park, with a reduced workforce, had closed or scaled back some live shows, attractions and restaurants. The theme park did not respond to a request for comment.
Covid is also keeping customers away from some businesses.
Xu Hengqiang, who sells rice noodle rolls in Shenzhen’s crowded Bao’an district, said orders in the last week of December were a fraction of usual as cases in the city continued to rise. Delivery orders and walk-in customers totaled about 90 on Wednesday and again on Thursday, he said, compared to about 500 on a typical day.
Most of his patrons have already contracted the virus, he said, while online orders have dried up as customers worry the virus will be unwittingly delivered to their doorstep — a common concern in China, where authorities have called for disinfection of frozen food and other goods.
China’s usually efficient logistics networks have also been temporarily paralyzed by the wave of Covid infections, causing e-commerce giant JD.com Inc.
to send 1,000 workers to Beijing to clear backlogs and Shanghai authorities to offer daily incentives of about $8.60 to entice delivery drivers to show up for work.
Mei Zhang, a 30-year-old cafe owner in Shenzhen, said delivering food and roasted coffee beans to her customers had become unusually difficult since the restrictions were lifted. “Deliveries are mostly Covid positive now,” said Ms Zhang, who works around the clock after all her staff contracted Covid after the policy change.
In the last three months of 2022, Chinese businesses borrowed more from non-bank lenders than at any time since China Beige Book, a research firm, first started tracking the data in 2012 – a possible sign that they are struggling.
“When companies leverage credit, there’s always the question of whether it’s done out of optimism or distress,” said China Beige Book CEO Leland Miller. “Here, the evidence for distress is overwhelming.”
—Grace Zhu, Zhao Yueling and Rachel Liang contributed to this article.
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