Chinese firms struggle with overnight supplies, demand slips as COVID cases spread

By Casey Hall, Martin Quin Pollard, and Joe Cash

SHANGHAI/BEIJING, Dec 21 (Reuters) – As a massive wave of COVID-19 infections in China begins to spread in a country the size of Europe, the ripple effect on businesses is accelerating.

COVID-19 infections are spreading across the country from its initial epicenter in the north, including the capital Beijing, and cases are hampering workforces in the manufacturing belt, including the Yangtze River Delta near Shanghai.

The retail and financial services industries have been hit hard by staff shortages, with manufacturers not far behind, according to an international business organization operating in China.

“The retail and customer-facing industries are in deep trouble. Obviously, because of illness, they have limited staff who can work, so many of our large retailers are not even open,” said managing director Noah Fraser. Canada China Business Council.

With mass testing halted after China abruptly abandoned its zero-COVID policy this month, official data no longer reliably records new case numbers. As of Wednesday, the country had reported just 5,241 COVID-19 deaths since the pandemic began.

However, some estimates predict that the current wave sweeping the country could infect as many as 60% of China’s 1.4 billion population.

“Case numbers are starting to spread outside the big cities, which of course means the virus is spreading and we’re going to see further disruption,” Fraser said.

Even before COVID-19 infections began to hamper Chinese businesses, the world’s second-largest economy was already slumped by efforts to contain the infection, as strict movement controls and repeated lockdowns hampered consumption and production.

China’s November factory output and retail sales data hit the weakest level in six months before most of the COVID restrictions were lifted in early December.

Retail sales fell 5.9% year-over-year amid broad weakness in the services sector, while auto production fell 9.9%, down from an 8.6% rise in October.

logistical impasse

Leading auto chip maker Renesas Electronics suspended production at its Beijing factory on Friday due to the COVID-19 infection, but said it would reopen on Tuesday.

“In some cases, companies have either completely closed their factories or reduced some production,” said Joerg Wuttke, president of the European Union Chamber of Commerce in China.

Wuttke added that as the infection spread into the workforce, China’s “closed loop” system, which many factories in China have relied on throughout the zero-COVID era, began to unravel and isolate employees from the wider world.

“You have to prepare your staff to turn it off before they get a fever, for example, if they’re around the machine, it basically cloudes their judgment.”

Keeping workers with specialized skills on the factory floor is just one of the problems they face amid a surge in cases, an executive at a major automaker said.

“If there is a problem with the truck driver, then the goods cannot be delivered to the factory, the factory cannot drive the truck to the store, and the entire industrial chain will be affected,” he said.

A senior manager who works in the heavy-duty truck division said the dealerships he interviewed had either been infected or were caring for sick family members.

“Essentially, everything ground to a halt and you couldn’t do any real business,” he said. Both executives declined to be named because they were not authorized to speak to the media.

China’s role as a key link in global supply chains and a key sales driver for many global consumer goods companies means further hits to production output and consumer demand will extend far beyond its borders.

Shanghai’s extended lockdown in April and May disrupted the supply chains of multinationals including Apple, Tesla, Adidas and Estée Lauder.

For now, however, the impact is limited in part by economic difficulties in the rest of the world weakening demand for Chinese products.

“The reduction in demand for consumer goods in the U.S. and Europe may have masked some of the impact,” said Jonathan Chitayat, Asia boss of Shanghai-based Genimex Group, a contract manufacturer of a range of consumer products.

The Lunar New Year holiday is good for manufacturers as more and more of the workforce is hit by infections in the coming months, with many factories closed for at least a month as workers return home.

While the worst effects of this wave are yet to be felt, some businesses in China remain relatively optimistic about the future once the initial wave of infections subsides.

“Most of my clients are in debt right now, so all of them are going out entertaining people and trying to push deals through,” said Dillon King, co-founder of an import-based food and beverage company. company.

“I’m optimistic about the year ahead, but the pain of the past few weeks will definitely be felt.” (Reporting by Casey Hall in Shanghai, Joe Cash and Martin Quin Pollard in Beijing; Editing by Anne Marie Roantree and Jacqueline Wong)

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