Pandemic Continues to Affect Production Amid China’s Zero-COVID-19 Policy

Beijing’s Strict Approach

In comparison to other countries, China’s COVID-19 numbers are relatively low. Still, the pandemic is having a big impact on production in several key industries thanks to the nation’s zero-COVID-19 policy. This entails shutting down entire cities and placing them on lockdown in order to contain case numbers.

Most recently, the manufacturing hubs of Shenzhen and Changchun were locked down, closing factories that make cars or auto parts as well as electronics. This comes after 86 cases were identified on Sunday, with officials now ordering all city residents to undergo three rounds of testing. The lockdowns will be in place for at least a week, setting back production.

A Compounding Problem

This causes a number of issues for the already battered global supply chain. China’s zero-COVID-19 policy has been closing entire factories for weeks at a time since the pandemic hit, leading to supply shortages in the automobile industry. Semiconductors or chips have been in short supply, with production delays in China a major factor. At the same time, Russia’s invasion of Ukraine is adding to supply-chain issues.

Chinese authorities say testing data and other factors would determine how long the latest lockdowns last. The country’s case numbers are presently up near levels not seen since 2020, possibly due to the highly contagious but milder Omicron variant.

Companies Affected

The lockdown in Shenzhen hurts Apple (AAPL) because Foxconn Technology Group assembles some iPhones and iPads there. It’s worth noting that electronics in general have shot up in price recently, partially because of supply-chain disruptions, contributing heavily to record-level inflation. Unimicron Technology Corp. makes printed circuit boards, partially for Apple, and it had to halt production in Shenzhen as of this week.

Meanwhile, in Changchun the auto industry is most impacted. Volkswagen (VWAGY), Toyota (TM), and state-owned automaker China FAW Group have suspended production in the city. While mask mandates and COVID-19-related restrictions may be relaxing worldwide, China remains entrenched in its “zero” policy, and production is stuck in neutral.

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