May 27, 2022

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China’s Covid Flare-Ups, Lockdowns Disrupting Supply Chain Again

  • COVID-19 outbreaks in China come on the back of signs that the global supply chain crisis was easing.
  • Samsung and Micron recently warned that a lockdown in the city of Xi’an could affect chip factory operations.
  • A partial lockdown in Ningbo has affected operations at the city’s major port.

COVID-19 flare-ups in China are straining supply chains as authorities tighten movement restrictions in various cities to stamp out the virus.

The current outbreaks come on the back of signs that the global supply chain crisis may be easing, throwing a curveball into the situation.

“Ongoing lockdowns in China are already causing disruptions,” Japanese bank Nomura said in a note last week.

Major chipmakers Samsung and Micron recently warned that an intense lockdown in the city of Xi’an could affect operations at their manufacturing facilities in the city. A delay in chip supply would intensify a global chip shortage and affect the timeline for electronics manufacturing.

Ningbo, a port city of around 8 million, is also dealing with a partial lockdown. Its Beilun district has been especially hard hit, and that’s spelled major problems for the shipping industry. 

“Many truckers live in Beilun and there are complicated Covid-19 control policies there, so it’s extremely difficult to bring containers in or out,” a source told trade publication The Loadstar.

With Chinese New Year just weeks away, some cargo has been rerouted to the Port of Shanghai, which is already congested, according to The Loadstar. Many smaller shipping service providers have already suspended operations this year head of the holiday, which starts on February 1.

Regional COVID-19 outbreaks are also spilling over to areas with no infections.

Several midsize textile companies in Hebei, Shandong, and Hubei are shutting earlier for Chinese New Year than in previous years, impacting raw material supplies, reported Caixin Global. A COVID-19 outbreak in the city of Shaoxing in the Zheijiang province forced key fabric factories to shut — in turn impacting apparel makers elsewhere in the country, according to the Chinese media outlet.

For now, there may be little respite to China’s whack-a-mole pandemic strategy given its Covid-zero approach, which Nomura expects will persist until late this year when the Chinese Communist Party is scheduled to hold its 20th Party Congress.

If the highly transmissible Omicron variant starts spreading locally, it could cause “significant supply-chain disruption,” said Nomura.

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