China is locking down in an effort to stamp out COVID-19 cases in the lead-up to the 2022 Winter Olympics. And since China plays host to roughly one-third of global manufacturing, that’s threatening to cause further upheaval in the global supply chain.
At least 20 million people are on lockdown in China, according to the New York Times. And connecting flights through Hong Kong for most of the world have been suspended through the next month.
Meanwhile, manufacturers are sweating China’s zero-tolerance policy, fretting about potential shutdowns at Chinese factories and ports. This is an especially vulnerable moment for global manufacturers. Prices for raw materials and shipping are climbing. There’s also the current labor shortage to contend with.
Analysts Warn of Supply Chain Disruptions
The Olympics will take place in Beijing next month. Already, the omicron variant has reached the city. Chinese authorities locked down the patient’s residence and workplace upon learning of Beijing’s first case. But further lockdowns could be coming, threatening the flow of goods in multiple industries.
“Will the Chinese be able to control it or not I think is a really important question,” Craig Allen, president of the U.S.-China Business Council, told the Times. “If they’re going to have to begin closing down port cities, you’re going to have additional supply chain disruptions.”
Analysts say further supply chain issues could take a toll on consumer confidence here in the U.S. And that would only make inflation worse.
The prospect of supply chain woes comes as some companies had begun to see a light at the end of the tunnel.
Chris Netram is managing vice president for tax and domestic economic policy at the National Association of Manufacturers, which represents 14,000 companies. He told the Times that since the pandemic began, U.S. manufacturing companies have been battling one supply chain problem after another.
“Right now, we are at the tail end of one flavor of those challenges: the port snarls,” he said, adding that Chinese lockdowns could be “the next flavor of this.”
Could Current Chinese Lockdowns Spread?
Right now, China’s most sweeping lockdowns are in Xi’an and Henan provinces. Neither is a major exporter. But if the lockdowns spread to cities like Tianjin or Shanghai, that could spell trouble.
“What we’re concerned with now is, is Xi’an a template for other cities in China?” wondered Handel Jones, CEO of International Business Strategies, a chip consultancy. “If they can’t control it in the next two or three weeks, then I think you could have a significant impact on the supply chain. Right now, it’s kind of the tipping point.”
While companies wait and see, manufacturers are starting to feel the pressure from retailers anticipating further supply chain problems. The CEO of a company that makes multicultural dolls told the Times that retailers are now demanding that goods for the fall be shipped as soon as May. That, in turn, has sped up the design process, putting pressure on other parts of the supply chain.
All told, many manufacturing companies are left holding their breath, waiting to see how much worse the supply chain problems will get.