New COVID-19 lockdowns in China have already impacted some of the country’s major manufacturing hubs and are threatening to further interrupt global supply chains already reeling from the ongoing impacts of the pandemic, renewed outbreaks in Europe, Russia’s invasion of Ukraine and various other disrupters.
In an attempt to contain what’s being referred to as the “worst-ever Covid-19 outbreak across multiple provinces,” China locked down the cities of Shenzhen and Changchun last week.
China also locked down Dongguan, a city in the southern province of Guangdong, which produced about 24% of China’s exports in 2020, according to CNBC.
Throughout the pandemic, China has maintained its strict “zero tolerance” policy toward COVID-19, with authorities pledging lockdowns for communities that have as little as one case of the coronavirus. The current lockdowns were initially expected to last one week but could extend longer than that, depending on the severity of the outbreak.
According to VOA News, people in Changchun are required to stay at home with only one person per household being allowed to leave for food and other necessities every two days.
“All nonessential businesses, as well as schools and transportation modes, have been closed,” it reports. “Residents also must submit to three rounds of mandatory testing.” The same precautions are being taken in Shenzhen.
The lockdowns had immediate impacts on China’s manufacturing, finance and industrial sectors. According to WSJ, the moves halted production at many electronics and auto factories in Changchun (an industrial hub) and Shenzhen (an economic hub). For example, Foxconn Technology Group, an assembler of Apple Inc.’s iPhones, halted operations in Shenzhen in compliance with the local government’s policy.
“The government placed [Shenzhen] into lockdown for at least a week and said everyone in the city would have to undergo three rounds of testing after 86 new cases of domestic Covid-19 infections were detected Sunday,” WSJ reports, adding that over the past two years, China has repeatedly locked down entire cities or sections of them, ordering factories to suspend operations as people stay home.
“Such suspensions have typically lasted for several weeks as authorities worked to bring down the number of infections, causing production snags in the semiconductor, automobile and other industries,” it adds. Joining FoxConn was printed circuit-board maker Unimicron Technology Corp., whose Shenzhen subsidiary halted production. The WSJ says the city is
home to many Chinese manufacturing giants, including telecommunication equipment maker Huawei Technologies Co. and electric-vehicle maker BYD Co., which produces electric cars and batteries.
The Trickle-down Effect
Specific to the Shenzhen lockdown, Fortune’s Andrew Marquardt says the impact of the lockdown could have a widespread negative impact on global imports and exports of crucial goods for the foreseeable future. “Whether its iPhones, cars or electronics,” Marquardt writes, “locking down Shenzhen, and the subsequent effect on the Yantian port—the fourth largest in the world—will cause shipping delays across a wide range of products and continue to harm supply chains that have experienced issues since the pandemic began.”
Along with iPhones and other Apple products, the lockdowns could also impact “electronics across all sectors,” says Marquardt, who calls Shenzhen the “heart of electronics manufacturing in China” because large manufacturers like Tencent and Huawei Technologies are both based there. The potential negative impacts of the lockdown could extend to phones, computers, semiconductor chips, tablets headphones and “many other electronic devices that are reliant on Chinese manufacturing,” Marquardt points out.
Shenzhen’s lockdown could also interfere with the export of automobile components. For example, Chinese electric vehicle and battery cell maker BYD is reportedly experiencing production issues at its Shenzhen factory as a result of lockdowns, according to Bloomberg.
“The company didn’t specify which production lines are impacted or to what extent,” the publication reports, noting that BYD’s Shenzhen campus is home to EV production, corporate headquarters, and research and development.