Amid yet another busy manufacturing year! There are several issues out there that we all need to keep a close eye on.
Now in the 3rd year of the global pandemic (I can’t believe I just said that), China’s Zero Covid Policy continues to influence so much of life within the PRC as well as in the world economy. A few terms that come to mind in describing this policy: lockdowns, mass testing, intense surveillance, isolation, quarantines, and border closures. But other than that, it’s been no big deal, right? Coming out of a 76-day lockdown, the city of Shanghai (28.5 million people) counted 29 active cases on June 1st. That was after a peak of 26,000 cases per day in April.
And just recently in a suburb of Wuhan, almost 1,000,000 people were locked down after 4 asymptomatic cases were reported. That’s right, FOUR. But let’s look at it from another perspective: over 1,000,000 people died in the United States compared to China’s 5,200 deaths. And while this number is likely grossly underreported, even if you multiply it tenfold, across China’s population of 1.4 billion people that’s still a remarkably low death rate.
Currently, travel restrictions are in effect to the extent that the U.S. State Department has issued a “Do Not Travel” advisory for Hong Kong and China due to the arbitrary enforcement of local laws, quarantine requirements, the potential for substantial travel restrictions if testing positive, and even the possibility of family separations. The constant question that is asked is “when will China allow more entry across the border”, and the answer remains “it’s anybody’s guess”. Most feel that it won’t be until after the Chinese New Year in 2023 at the earliest.
With elevated political tensions over the Russian invasion of Ukraine (and China’s relationship with Russia), a new level of tensions surfaced just this past week with Speaker Nancy Pelosi’s visit to Taiwan. This was met with a strong reaction from Beijing, including heightened military exercises in the Taiwan Strait (complete with a number of missile launches just for good measure), China’s cancellations of several defense ministry talks and other diplomatic exchanges with the U.S., and sanctions levied on Speaker Pelosi and her family. Will this have an impact on the business environment throughout China? Not likely, in my opinion. There is a certain element of a divide between China’s business environment and its political machinations, although this gap is narrowing depending upon the issue and the level of China’s response.
The one element that is most affecting the manufacturing environment is China’s Zero Covid policy. This is affecting the flow of raw materials and finished goods, worker availability, and manufacturing schedules. For example, a common practice that manufacturers are experiencing is that the Chinese government is conducting random and unannounced Covid testing of all personnel at factory locations. If even one person tests positive, the factory is shut down, no one is allowed to leave the property, and no goods can move in or out of the factory until all personnel test negative again. This potential for factory (and residential housing) shutdowns looms constantly.
Also, the flow of goods and product samples over the border into Hong Kong is still impacted. A smaller population of couriers are qualified to cross the border, and this is slowing down the process.
Because manufacturer production schedules are being impacted by the Zero Covid policy (remember- raw materials vendors are also experiencing delays), overall project lead times are being negatively affected, especially when one adds the current lead times for international freight forwarding. What was once a typical manufacturing lead time of 35-45 days, now a better guideline to follow is 60 days (from purchase order submission to completion of finished inventory).
A bright spot though (pun intended) is electricity capacity. Electrical supply throughout the area has been stable, and there are currently no reports of the rolling brownouts that manufacturers experienced previously.
And that constitutes the current update on China. Stay tuned- more updates to follow!