The coronavirus sweeping through China is causing widespread business disruption as staff shortages threaten to shut down factory production lines and truck drivers fall ill, wreaking havoc on supply chains.
The Omicron variant of the virus has started running through several major cities since President Xi Jinping’s sudden reversal of the former zero-Covid containment policy earlier this month. The increase in infections is greatest in the capital Beijing, where more than half of the population of 22 million is infected, according to some estimates.
Many office workers have started working from home, but some factories are being short-staffed as workers call in sick. Business owners and executives said this was causing increasing disruption to production and supply chains.
The boss of a printed circuit board factory in the eastern province of Shandong said only 20 percent of staff came to work on Friday, the rest saying they were sick with Covid. “One after the other tested positive. I’m worried about having to close the factory”, they said.
Companies have been left with no direction on how to handle the sudden surge in cases, after previously operating under strict guidelines issued by local governments. Factory bosses are now loosening all controls or isolating the workforce to keep production lines running.
A manager of an auto assembly plant in northern Hebei province said his group plans to reinstate the “closed loop” system, whereby staff live and work on-site during Covid outbreaks. in order to maintain production and avoid contracting the virus.
“Otherwise, we won’t have any workers left,” he said.
Elsewhere, factory bosses have dropped restrictions such as PCR testing and locking out workers from the general population.
Jörg Wuttke, president of the EU Chamber of Commerce in China, said it would be increasingly unsustainable for manufacturers to rely on the closed-loop model. He said the sheer scale of the exodus and the lack of measures to suppress its spread made those strategies no longer work.
There is some evidence that the disruption will be short-lived. The Zhengzhou campus of Apple contract manufacturer Foxconn, the world’s largest iPhone factory, is among those to have dropped its notorious restrictions, and production is picking up, according to an employee.
In October, workers at the Zhengzhou plant staged a walkout after a Covid outbreak forced them into dormitories, with food and medical supplies running low.
This month, Foxconn had scrapped daily mandates for PCR tests and dismantled metal barriers that had kept its staff confined to the Zhengzhou campus, according to a worker who asked to remain anonymous. “We are now free. There are no longer metal fences erected or any other form of restriction in place,” they said.
They said Covid-positive workers could continue to work or self-isolate in the dormitory. The Foxconn employee added that “production is returning to normal” after the company hired new workers and others who had “fled the factory” returned to work.
Foxconn did not respond to a request for comment.
Experts said factories will face labor shortages until February, after the Lunar New Year. The Omicron outbreak has advanced the annual movement of more than 290 million migrant workers from coastal provinces to poorer regions in the west, which comes before the festive period.
“Sectors that rely on migrant workers are struggling because many people have already gone home for the Chinese New Year holiday, which is only five weeks away,” said Chen Long, a partner at research provider Plenum, with based in Beijing. “Things will be pretty quiet until the end of January.”
Factory bosses are also addressing supply chain issues. Wuttke of the EU Chamber of Commerce said the growing number of truck drivers testing positive for Covid-19 would be disturbing. Under the zero-Covid regime, drivers were subject to strict tests, which hampered supply chains but kept sick motorists off the roads.
Some plants would be forced to slow production due to the lack of components from suppliers forced to close their operations. “This is about stocks and inventories,” he said.
Jacob Cooke, chief executive of WPIC Marketing + Technologies, which operates several warehouses in China, said he had experienced delivery delays when drivers fell ill.
“Delivery routes between major cities have multiple stops where drivers exchange cargo. It only takes one driver to call in sick, and then things are put on hold for another day,” he said.
A cosmetics retailer in the southern city of Shenzhen said it was facing delays in sending packages to customers after many delivery drivers tested positive. “The delivery system is very slow at the moment,” he said.
However, investors hope the short-term shutdown period will speed up China’s opening up, after three years of isolation from the rest of the world.
“If the virus continues to spread at its current rate, most cities will have passed the peak by mid-January. The resumption of activity will be quite rapid in February,” Chen said. “Investors will be reviewing this period of near-term disaster. The crucial question is how quickly things will return to normal after this wave, and it looks like it could be much faster than expected.”
Shaun Rein, managing director of the China Market Research Group, warned that there would be no “revenge spending” by Chinese consumers after the initial wave of infections begins to ease.
“Many workers have had salary cuts in 2022 with all the confinements. Consumer confidence is very low. Many small and medium-sized companies have already started their activity”, he said.
There are early signs of a pick-up in domestic and international travel.
“We expect that ‘return home’ demand during Chinese New Year could be better than our previous expectation,” Citi analysts wrote in a research note. They cited data from travel services provider Qunar showing a more than eight-fold increase in air ticket bookings for the holiday period, made in the week after Covid restrictions were eased on December 7 .
There is also a huge pent-up demand for international travel. Flight searches for the New Year’s Eve period rose to a three-year high on travel site Ctrip after restrictions were eased.
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Hua Yifan, manager of Shanhui Dress, a clothing manufacturer based in the eastern city of Jiaxing, is among the first wave of Chinese exporters to benefit from more freedom to travel. Hua joined a delegation of 100 exporters who traveled to Japan in early December for a week-long trip organized by the city’s commerce department.
“This is the first time I have personally attended the semi-annual Asia fashion fair since the pandemic began in 2020,” Hua said. “I was very excited to meet customers I hadn’t seen in a long time.”
During the trip, Hua secured orders worth $5 million from seven Japanese companies. The Japanese market usually contributes 50 percent of Shanhui’s annual revenue, Hua added.
Cooke predicts that any further easing of incoming quarantine restrictions will lead to an influx of foreign executives who have been unable to travel to China and meet local employees and business partners. “People with businesses here have not been able to come for three years. As a result not many investments have taken place,” he said.
Additional reporting by Sun Yu in Shanghai and Nian Liu in Beijing