Lockdowns in China spark fears of disruption in supply chain

BEIJING • China's efforts to curb its largest Covid-19 outbreak in two years have forced companies from Apple supplier Foxconn to carmakers Toyota and Volkswagen to suspend some operations, raising concerns over supply chain disruptions.

Multiple Chinese provinces and cities have tightened restrictions in line with Beijing's zero-tolerance goal of suppressing the spread of the coronavirus as quickly as possible, among them the southern Chinese technology hub of Shenzhen.

Shenzhen, China's Silicon Valley, is carrying out mass testing after dozens of new local cases were recorded. Officials have suspended public transport and urged people to work from home this week as much as possible.

White House press secretary Jen Psaki said on Monday that the Biden administration was monitoring the lockdown of the technology hub "incredibly closely". "What we are looking at is, of course... the impact on some of these ports around the impacted areas of China," she said.

China has reported more local symptomatic Covid-19 cases so far this year than it recorded in all of last year.

Foxconn, formally known as Hon Hai Precision Industry, said that its Shenzhen operations would be suspended until fur-ther notice, adding that it would deploy backup plants to reduce disruption.

Two sources familiar with the matter told Reuters that Foxconn's and its subsidiaries' op-erations in Shenzhen would be suspended for the first half of the week.

One of the people said the government was allowing companies to operate if they could create a "closed management" system, where employees would live and work in a bubble. Such a system was in place during the Beijing Winter Olympics.

Taiwan companies which said they had suspended Shenzhen operations included chip substrate and printed circuit board maker Unimicron Technology, which also supplies Apple and Intel, and flexible printed circuit board maker Sunflex Technology.

Sunflex said its plant would be closed until Sunday. Apple did not immediately respond to requests for comment. Intel declined to comment.

Mr Paul Weedman, who runs manufacturing consultancy Victure Industrial in Shenzhen, warned that the restrictions were having a ripple effect beyond Shenzhen to the wider Guangdong province. Production for some of his customers' orders has been suspended, and many factory visits cancelled, he said.

"Imagine you have a factory of 100 people and all of a sudden, you can't do anything - you can't fulfil your existing orders, you can't accept new orders. The impact is not two or three weeks, but three to six months."

Shenzhen's Yantian International Container Terminal, one of China's busiest ports, said in a WeChat statement that it was operating normally, although two companies with warehouses at the port said they needed to suspend operations temporarily.

Other cities have enacted restrictions to varying extents. Officials have locked down Changchun city, the capital of north-eastern Jilin province, shut schools in the financial hub of Shanghai and suspended public transport in the manufacturing centre of Dongguan.

Toyota said on Monday that its joint venture with China's FAW Group had suspended production in Changchun, while its Tianjin city operations remained unaffected. Volkswagen, which also has a joint venture with FAW, said it had suspended production at its vehicle and component plants from Monday to today.

FAW, which is headquartered in Changchun, did not respond to a request for comment.

A factory owner in Dongguan, who gave his surname as Lau, said his plant was forced to shut down from Sunday until yesterday. It was also experiencing some issues in obtaining materials from suppliers due to the virus restrictions, he added.

"Hopefully, they will let us carry on with the production soon," he said. "There is not much we can do. The whole world has moved on, except for China. They should just let go of the zero-Covid-19 strategy."

Meanwhile, trucking operations across China are being delayed by more stringent testing requirements for drivers.

The operational efficiency of trucking services at major port cities, including Shanghai, Hong Kong, Shenzhen, Qingdao and Tianjin, is expected to be reduced significantly due to the crackdown, AP Moller-Maersk said in an advisory on Monday. Even inland ports along the Yangtze River and in the west Pearl River Delta will not be spared, the Danish transport giant said.

REUTERS, BLOOMBERG