China’s Omicron Lockdowns Mean More Supply Chain Pain

A globalized world is vulnerable to local disasters.

Braw-Elisabeth-foreign-policy-columnist3
Braw-Elisabeth-foreign-policy-columnist3
Elisabeth Braw
By , a columnist at Foreign Policy and a fellow at the American Enterprise Institute.
Chinese residents queue for COVID-19 testing.
Chinese residents queue for COVID-19 testing.
Residents queue to undergo nucleic acid tests for COVID-19 in Shenzhen, China, on March 14. STR/AFP via Getty Images

“When France sneezes, the rest of Europe catches a cold,” former Austrian Chancellor Klemens von Metternich famously concluded. In recent days, quite a few people in the Chinese manufacturing hubs of Shenzhen and Dongguan have been sneezing. More accurately, despite China’s zero-tolerance COVID-19 policy, quite a few of them have been catching COVID-19. China is in the middle of its biggest COVID-19 outbreak since the virus began its calamitous course in Wuhan, China, two years ago. That means lots of closed factories—and disrupted supply chains. It should also serve as a reminder to consumers around the world that supply chains can be disrupted by pandemics, wars, and novel disasters.

In recent years, consumers around the world discovered the manufacturing metropolis of Shenzhen—and its smaller neighbor Dongguan. In the past 30 years, the two formerly sleepy towns, initially helped by their proximity to Hong Kong, turned themselves into global industrial centers. In 1985, Dongguan had a population of 237,000 people while Shenzhen was home to 175,000 people. By 2015, Dongguan had 7.4 million residents, and Shenzhen had 10.7 million. Both cities had gained lots of corporate residents too: international companies from Coca-Cola to Philips and countless Chinese subcontractors.

Now, many of Shenzhen’s and Dongguan’s residents have COVID-19. A new outbreak caused both cities to go into lockdown—only a few weeks after another outbreak also forced several ports in the area to partially close. “Closed highways, lockdowns in an increased number of Chinese cities, infections at an express service company, and government and public concerns about virus contaminated parcels have all delayed—and, in many places, disrupted—shipping within China, which will in turn affect the container shipping market,” Yuanxin Liao, an analyst at Control Risks, told Foreign Policy last week. “Businesses across China are now facing not only more but also more complex COVID-19 policies. The biggest challenge now is the rapidly increasing asymptomatic cases in the latest outbreak. The difficulty to detect such cases suggests that current lockdowns could be prolonged given that China is not ending its zero-COVID policy.” While businesses are reopening, some factories are still closed. And with neither factories nor ports or trucking companies able to operate at capacity, the world is once again facing supply chain turbulence.

“When France sneezes, the rest of Europe catches a cold,” former Austrian Chancellor Klemens von Metternich famously concluded. In recent days, quite a few people in the Chinese manufacturing hubs of Shenzhen and Dongguan have been sneezing. More accurately, despite China’s zero-tolerance COVID-19 policy, quite a few of them have been catching COVID-19. China is in the middle of its biggest COVID-19 outbreak since the virus began its calamitous course in Wuhan, China, two years ago. That means lots of closed factories—and disrupted supply chains. It should also serve as a reminder to consumers around the world that supply chains can be disrupted by pandemics, wars, and novel disasters.

In recent years, consumers around the world discovered the manufacturing metropolis of Shenzhen—and its smaller neighbor Dongguan. In the past 30 years, the two formerly sleepy towns, initially helped by their proximity to Hong Kong, turned themselves into global industrial centers. In 1985, Dongguan had a population of 237,000 people while Shenzhen was home to 175,000 people. By 2015, Dongguan had 7.4 million residents, and Shenzhen had 10.7 million. Both cities had gained lots of corporate residents too: international companies from Coca-Cola to Philips and countless Chinese subcontractors.

Now, many of Shenzhen’s and Dongguan’s residents have COVID-19. A new outbreak caused both cities to go into lockdown—only a few weeks after another outbreak also forced several ports in the area to partially close. “Closed highways, lockdowns in an increased number of Chinese cities, infections at an express service company, and government and public concerns about virus contaminated parcels have all delayed—and, in many places, disrupted—shipping within China, which will in turn affect the container shipping market,” Yuanxin Liao, an analyst at Control Risks, told Foreign Policy last week. “Businesses across China are now facing not only more but also more complex COVID-19 policies. The biggest challenge now is the rapidly increasing asymptomatic cases in the latest outbreak. The difficulty to detect such cases suggests that current lockdowns could be prolonged given that China is not ending its zero-COVID policy.” While businesses are reopening, some factories are still closed. And with neither factories nor ports or trucking companies able to operate at capacity, the world is once again facing supply chain turbulence.

That’s a problem that may only get worse as China wrestles with its latest omicron outbreak. If other countries and regions where COVID-19 has broken through tough policies, from Hong Kong to South Korea to New Zealand, are an indication, China’s cases, already rising steeply, could skyrocket in the next few weeks. Even if they don’t, keeping the outbreak under control will mean more shutdowns—at little notice—as well as disruptive and time-consuming mass testing. All that shuts down even more activity.

That doesn’t just mean a smaller inventory of, say, Philips electric razors in your local store. It also means reduced supplies of the parts that go into various products whose assembly takes place in other parts of the world. In a globalized economy powered by shipping, a finished product has often traveled between several different countries before making its eventual journey to the customer. And those are the simpler products.

Consider, for example, the construction and maintenance of an airliner. Russia is learning what it means to be dependent on international suppliers of parts for civilian airplanes, which consist of some 3 million parts, as it is now cut off from spare parts made in other nations. Those parts come together in a highly sophisticated assembly process—but with usage, they often break and need regular replacement. Such globe-spanning chains pose a problem when COVID-19 can disrupt factory operations, trucking, loading and unloading at ports, or any other cog in the system.

Companies have no way of knowing which part of their supply chain is at risk of disruption because their supply chains are too complex to know in detail. “Most companies simply have no way of knowing all the participants in their supply chain,” said Michael Essig, a professor of supply management at Bundeswehr University in Munich, in 2019. He added, “Let’s assume that a global company like Volkswagen has around 5,000 direct suppliers and that each has around 250 subcontractors. That means that the company has 1.25 million second-tier suppliers. With each additional step, the supply chain grows exponentially.” It’s hardly surprising that Gary Lowe, CEO of Thyssenkrupp Aerospace North America, told a supplier conference last month that “wherever I look in the supply chain, I see problems.”

And COVID-19 is not supply chains’ only foe. Russia’s invasion of Ukraine has caused a global shortage of fertilizer because Russia is the world’s second-largest producer of the fertilizer component potash and the Kremlin now plans to suspend exports of it. Belarus is the third-largest, but the United States has sanctioned the country’s largest potash producer, Belaruskali, forcing it and its exporting partner Belarusian Potash Co. to tell clients they would not be able to keep selling to them. The potash shortage is now a global fertilizer shortage. Florida Agriculture Commissioner “Nikki Fried blames [Russian President] Vladimir Putin for fertilizer shortage,” the website Florida Politics reported earlier this month.

Globe-spanning supply chains have made manufacturing extremely efficient by allowing countries and regions to specialize and thus drive costs down. But pandemics, wars, and blockages—such as China’s suspension of imports containing Lithuanian parts—not to mention extreme weather events (Remember how the Fukushima disaster disrupted global car manufacturing?) are becoming such a major risk that companies may conclude that their globe-spanning supply chains are unsustainable.

Indeed, what if countries—many of which are now at daggers drawn—deliberately throttled exports of crucial goods to other countries? Last year, China floated the idea that it might ban exports of rare earth metals. Beijing, in fact, seems to have discovered the potential of weaponizing supply chains. Its worries that computer chip giant Taiwan may suspend exports of the vital chips have prompted China to quickly (and not always ethically) build a domestic computer chip industry.

During the Cold War, Western businesses operated internationally—but their operations in foreign countries were mostly clones of home operations: factories that built entire products for the respective country. That way, it didn’t matter if anyone caught a cold. The world may be headed for a return to that expensive but stable way of supplying the world with essential—and nonessential—goods.

Elisabeth Braw is a columnist at Foreign Policy and a fellow at the American Enterprise Institute, where she focuses on defense against emerging national security challenges, such as hybrid and gray-zone threats. She is also a member of the U.K. National Preparedness Commission. Twitter: @elisabethbraw

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