Pressure on supply chains could ease as Shanghai factories open

By Andy Brown and Reuters21 April 2022

China is trying to eradicate Covid-19. Picture @Reuters

Manufacturers have started preparing to reopen their Shanghai plants as China’s most populous city speeds up efforts to get back to normal after a nearly three-week Covid shutdown, according to a report from Reuters.

Still, most workers will have to live onsite, and there was no immediate word how factories will deal with disrupted supply lines and access to market, with closures ordered by authorities in other cities and port and trucking problems.

The shutdown in the city and China’s measures to control the pandemic elsewhere have hurt the economy and harmed global supply chains. Shanghai’s 25 million people have struggled with income losses, lack of steady food supplies, separation of families and poor conditions in quarantine centres.

Shanghai lockdown 

Economists have warned that the ongoing lockdown in Shanghai could cost China’s most populous city and a key financial hub a 6% loss of Gross Domestic Product (GDP), which translates to 2% loss of GDP for the whole of the nation.

The situation is also placing even more strain on supply chains. Shanghai is home to the world’s largest port, and although it has largely remained open, trucks are struggling to unload cargo due to strict permit regulations, causing shipping containers to stack up.

Beijing said last week it had drawn up a ‘white list’ of 666 firms prioritised to reopen or keep Shanghai operations going. These include Tesla, Volkswagen and its Chinese partner SAIC Motor, as well as semiconductor and medical firms, according to a copy of the list seen by Reuters.

To prepare for the restart, Tesla has recalled workers to its Shanghai plant where they will need to live on site, in line with China’s “closed loop management” process, two sources said.

SAIC Motor said it would start conducting stress tests on Monday on its own production resumption plans, while Volkswagen said it was evaluating the feasibility of resuming production at its joint venture with SAIC.

The city aims to stop spread of Covid-19 outside quarantined areas by Wednesday, Reuters cited sources as saying on Sunday, an ambitious target that would allow further easing of its lockdown. It is stepping up testing and the transfer of positive cases and their close contacts to isolation centres to meet that goal.

Shanghai’s lockdown and wider China curbs are taking a toll on the world’s number economy during a key year for President Xi Jinping, who is expected to secure a third leadership term in the autumn. Data for March released showed that consumption and employment suffered because of Covid curbs, with economists predicting a worsening overall economic outlook.

Daily covid tests 

The situation in China is challenging the global supply chain (Photo: AdobeStock)

Shanghai is under pressure to deliver on China’s Covid-19 elimination strategy, which is being increasingly challenged by the highly infectious Omicron variant.

While the city has not given a timeline for how it will further ease restrictions after ending community spread outside quarantined areas, authorities have said reaching such a state is essential to ending movement curbs.

Last month, the city of Shenzhen reopened public transport and allowed businesses get back to work shortly after reaching a similar status.

But Jin Dongyan, a virologist at the University of Hong Kong, said it would be difficult for Shanghai to make sure by Wednesday that nobody outside centralised quarantined facilities in the city is free of Covid, given that the virus can spread faster than Shanghai can identify infections using PCR tests.

Several residents have said that they and their neighbours have collectively refused to join queues for PCR tests, some out of weariness after multiple rounds and others out of fear of catching Covid while gathering for tests.

“We hope that the majority of our citizens will continue to cooperate as always ... and achieve the goal of zero-COVID at community level as soon as possible, and allow normal production and life to resume,” Shanghai health official Wu Qianyu said.

Of 21,395 new local infections Shanghai reported for Sunday, 561 were found outside quarantine areas, down from 722 on Saturday, the third consecutive decline. Shanghai has carried out more than 200 million PCR tests since March 10.

An unnamed executive at a listed pharmaceutical firm told the state-backed Shanghai Securities News on Monday that it was unclear how to transport goods, return orders or collect bills when resuming work, given the ongoing current curbs.

“These are real problems that the policy still needs to address,” the newspaper quoted the person as saying.

(Reporting by Brenda Goh, Zhang Yan, Winni Zhou Roxanne Liu and the Beijing and Shanghai Newsrooms; Editing by Tony Munroe, Jacqueline Wong and Raju Gopalakrishnan)

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