{"id":9233,"date":"2022-01-14T19:29:07","date_gmt":"2022-01-14T19:29:07","guid":{"rendered":"https:\/\/asia-ibs.com\/v2\/omicrons-spread-in-china-threatens-to-trigger-the-mother-of-all-supply-chain-bottlenecks\/"},"modified":"2022-01-14T19:29:07","modified_gmt":"2022-01-14T19:29:07","slug":"omicrons-spread-in-china-threatens-to-trigger-the-mother-of-all-supply-chain-bottlenecks","status":"publish","type":"post","link":"https:\/\/asia-ibs.com\/en\/omicrons-spread-in-china-threatens-to-trigger-the-mother-of-all-supply-chain-bottlenecks\/","title":{"rendered":"Omicron’s spread in China threatens to trigger the mother of all supply chain bottlenecks"},"content":{"rendered":"\n

The outbreak of the omicron covid variant in China is generating great nervousness across supply chains and among manufacturers. The forceful measures being orchestrated from Beijing to contain the virus could cause disruptions in the supply chain unlike anything seen so far. Manufacturers and carriers are bracing for a disruption inside the ‘factory of the world’<\/a> should the country fail to contain the spread of this new covid variant.<\/p>\n\n\n\n

In 2020 and 2021, China’s ‘zero-covid’ strategy<\/strong> allowed factories to remain open throughout the pandemic to produce everything from health equipment to laptops, which the world’s consumers snapped up at a record pace. This time may be different, and there are several reasons to believe so, according to the financial news agency Bloomberg<\/em>.<\/p>\n\n\n\n

Thomas O’Connor: “If there are shutdowns in Chinese industry, there will be a massive impact on the economy”<\/em><\/p><\/blockquote>\n\n\n\n

This variant is highly contagious and Beijing does not want to risk widespread transmission among the population. So far there have been confirmed cases of local infection every day since mid-October, and it is likely that even stricter restrictions will be needed<\/strong> to curb the spread of omicron, with dire consequences for the supply chain, and for ports and factories as more cities are locked down.<\/p>\n\n\n\n

Until now, China has not been suffering the problems seen elsewhere, such as the shortage of certain foods being experienced in Australia and Japan<\/a>. But with the arrival of the Winter Olympics, Beijing will want to uphold its ‘zero-covid’ strategy at all costs, so the country’s policymakers could be forced to tighten restrictions even if the economy suffers and supply chains grind to a halt.<\/p>\n\n\n\n

“The reality is that China remains the center of global manufacturing,” says Thomas O’Connor, a supply chain expert at Gartner in Sydney. “If there are significant factory and logistics shutdowns in China associated with covid-related challenges, that would have a massive impact<\/strong> on the global economic environment.”<\/p>\n\n\n\n

In recent weeks, sporadic outbreaks of the delta and omicron variants scattered across the country have already forced the closure of garment factories and reduced gas deliveries around one of China’s largest seaports in Ningbo, while disruptions hit computer chip manufacturers in the locked-down city of Xi’an, and a second citywide lockdown was imposed in a different province on Tuesday.<\/p>\n\n\n\n

Other nearby cities are facing some restrictions, and authorities in the southern technology and industrial hub of Shenzhen have tightened restrictions on vehicles entering the city as of Tuesday. That is raising concern over delays at the nearby port of Yantian (something similar happened in 2021 at other ports)<\/a><\/strong>, which is one of the largest container ports in Asia and was partially shut down for a month last year after an outbreak.<\/p>\n\n\n\n

Stranded toys<\/h2>\n\n\n\n

One manufacturer in a very delicate position because of the current delays is Sidney Yu, whose Hong Kong-based firm Prime Success Enterprises makes educational and recreational products such as children’s play tents and pet baths.<\/p>\n\n\n\n

Yu has five containers ‘stranded’ due to the outbreak in Ningbo<\/strong>, where part of his production is based. He worries that if he does not ship his products before the upcoming Chinese New Year holidays, when factories close for weeks, he will miss the window to get his spring and summer product range to market on time. Last Christmas, retailers in Europe and America faced a similar situation<\/a>, although in the end disaster was averted thanks to the foresight of all the companies involved.<\/p>\n\n\n\n

Today, the problem is that omicron has emerged by surprise and its rapid spread is preventing the preventive measures needed to avoid a monumental bottleneck in the global supply chain.<\/strong> Now, the world is at the mercy of this variant’s spread and of how much tolerance the Beijing government shows toward it, something truly unpredictable. <\/p>\n\n\n\n

“A critical moment”<\/h2>\n\n\n\n

“This is a critical moment before Chinese New Year,” says Yu. “We have a lot of shipments as we try to make the most of the last few weeks before the holidays begin.”<\/p>\n\n\n\n

The rumblings in China come just as the global economy, overwhelmed by the omicron variant, faces shortages of truck drivers, pilots, supermarket staff and other frontline workers, extending a supply crisis that has haunted the world for much of 2021 and has already sent prices soaring.<\/p>\n\n\n\n

Shipping container costs remain very high compared with those seen at the start of the crisis, commodity prices are near multi-year highs<\/a>, and disruptions are likely to last through the end of 2022, according to an analysis by Oxford Economics.<\/p>\n\n\n\n

Production in Southeast Asia was hit last year when highly industry-intensive economies such as Vietnam and Malaysia imposed strict lockdowns, causing long delays in the production of semiconductors, apparel and more. It also led some companies to bring production back to China, which was able to export record quantities of goods despite the occasional domestic outbreak, shipping congestion and problems at ports in the US and elsewhere.<\/p>\n\n\n\n

However, a wider spread of omicron across China and the rest of Asia could unleash “the mother of all supply chain stumbles”<\/strong> this year, according to Frederic Neumann, co-head of Asian economic research at HSBC. Bank of America economists warned that Asia has yet to see a major omicron wave, meaning the worst impact is still to come.<\/p>\n\n\n\n

If China manages to contain the virus once again, it will ease global supply pressures, but for manufacturers like Yu, the short term offers no respite from the lingering problems. “For the next six months I don’t see any major improvements,” says Yu.<\/p>\n","protected":false},"excerpt":{"rendered":"

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