What European companies face with China’s zero Covid policy

Shanghai, home to the world’s largest container port, began a two-part lockdown on March 28 and has yet to announce a date for lifting the restrictions.

Yang Jianzheng | Visual Group China | Getty Images

BEIJING — China’s Covid controls have disrupted supply chains and stressed the daily lives of workers, mainly in Shanghai and Shenyang, according to a slew of anecdotes from the EU Chamber of Commerce in China.

Mainland China has struggled in recent weeks to control its worst surge of Covid since the initial shock of the pandemic in early 2020. While rapid lockdowns later helped the country control the virus and return to growth, the latest outbreak stems from the more transmissible omicron variant.

Shanghai, home to the world’s largest container port, began a two-part lockdown on March 28 and has yet to announce a date for lifting the restrictions.

EU Chamber members estimate Shanghai port volumes are down about 40% week-on-week, Bettina Schoen-Behanzin, Shanghai branch president and vice president, said on Wednesday. – president of the chamber.

She noted that although the port is “technically operating as usual”, logistics still faces challenges related to a shortage of truck drivers, who are stranded or need frequent negative virus tests.

The Shanghai International Port Group said in a statement on Saturday that the ability of ships to reach designated points for unloading or loading cargo was more efficient than last year overall. Since March 28, the average container ship waiting time at the port has been less than 24 hours, the port said.

“Shanghai is in a kind of state of emergency,” Schoen-Behanzin said. “There is a strong sense of uncertainty throughout the city. It is fueled by supply shortages, endless closures and a very strong fear of being sent to these quarantine camps.”

In an attempt to manage a surge in cases, authorities in Shanghai have set up makeshift quarantine centers.

Schoen-Behanzin noted reports that people living in lockdown in the city had to wake up at 4 a.m. to compete for online vegetable deliveries.

Companies that get permission to maintain operations — in the food, pharmaceutical or chemical industries — must keep employees in a bubble around production facilities, Schoen-Behanzin said.

“We hear more and more that some workers no longer volunteer because there are no more [a] end in sight and they don’t want to eat and sleep there,” she said.

Local authorities allowed similar work-in-place policies during a roughly week-long lockdown last month in the southern technology and manufacturing hub of Shenzhen.

Two days after the lockdown was lifted, the chairman of the Southern China section of the EU Chamber, Klauz Zenkel, said a business he had visited still had “lots and lots of foldable beds” – which the company planned to keep on hand as they weren’t sure they would need it again soon.

China’s Commerce Ministry did not immediately respond to a request for comment.

Automotive supply chain issues

In the northern Chinese city of Shenyang, residents have been locked down for more than two weeks, according to local union president Harald Kumpfert.

He said BMW’s joint venture in the city was initially able to maintain production, but had to shut down after an indefinite period “because the supply chain could not be maintained”.

“All transport is stopped on the road,” Kumpfert said. “You would be caught by the police if you are on the road and you don’t have special permission.”

BMW did not respond to a CNBC request for comment.

Volkswagen, which has factories on the outskirts of Shanghai and in a major city in Jilin province – also under lockdown – said both production sites would remain closed on Wednesday and Thursday.

Kumpfert also said anecdotally during Wednesday’s webinar that a member company was unable to get a loan because a bank said it was unable to provide loans in because of the number of insolvencies and bankruptcies. It was unclear what size loan or bank was involved.

Limited national impact

Representatives from EU chambers in the southwest and other parts of China noted some supply chain disruptions, but overall less Covid impact on local operations. The chamber noted that they did not know what the Covid situation was in rural China.

Citi analysts said Wednesday they see “a significant impact on consumption” but less on production and investment from the March omicron wave.

“Although Shanghai and Guangdong Province accounted for 7.3% and 23.1% of Chinese exports and 14.4% and 18.5% of imports in 2021, we believe the impact on trade is controllable: Shanghai’s half-city lockdown only started from March 28, while Dongguan and Shenzhen’s were completed within a week,” analysts said. They expect growth of GDP by 4.7% in the first quarter, up from a previous forecast of 3.8%.

Last week, a survey of American businesses in China found that 54% of respondents had lowered 2022 revenue projections for the year due to the latest Covid-19 outbreak.

Among manufacturers, more than 80% reported a slowdown or reduction in production, as well as supply chain disruptions. The Beijing-based American Chamber of Commerce in China and its counterpart in Shanghai conducted the investigation last week.

Long-term challenges

The longer-term impact of Covid on China – especially as Shanghai’s lockdown persists – is hoarding talent, EU House officials have said. They noted how Covid-related travel and quarantine requirements, particularly to enter the country, have already discouraged new foreign staff from accepting jobs in China.

Shanghai has been a hub for foreign companies in the country, in part due to the city’s culture and systems, including a large number of international schools and hospitals.

“Everyone is amazed that this happened in Shanghai. It’s not central Hunan. It’s Shanghai,” said chamber president Joerg Wuttke.

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Wuttke estimated that the number of foreigners on the mainland has halved since the start of the pandemic and could halve further this summer. Overall, he expects the total population of Europeans in the country to have fallen so sharply that they would fit into the Bird’s Nest stadium in Beijing.

The stadium has a permanent capacity of around 80,000.

The number of foreigners living in Beijing and Shanghai fell by 41.5% and 21%, respectively, between the official censuses of 2010 and 2020. The total number of foreigners in the country has increased over these ten years. by about 40% to reach 1.4 million people.

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