Business

Chinese businesses struggle with tight supply, falling demand as COVID cases spread



© Reuters. FILE PHOTO: An empty area is pictured in the Lujiazui financial district, as the coronavirus disease (COVID-19) outbreak continues in Shanghai, China, December 19, 2022. REUTERS/Aly Song

By Casey Hall, Martin Quin Pollard and Joe Cash

SHANGHAI/BEIJING (Reuters) – As China’s massive wave of COVID-19 infections begins to spread across a country roughly the size of Europe, the knock-on effect on business is growing get a raise.

From the original epicenter in the north, including the capital Beijing, COVID-19 infections are spreading across the country and cases are hampering the workforce in production belts, including Yangtze River Delta, near Shanghai.

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

“The retail sector and customers are in serious trouble. Obviously, they have a limited number of employees willing to work because of illness, so many of our large retailers aren’t even there. open,” said Noah Fraser, chief executive officer at. Canada-China Business Council.

With mass testing halted after China abruptly dropped its COVID-free policy this month, official data no longer reliably captures new case numbers. As of Wednesday, the country has reported only 5,241 COVID-19 deaths since the pandemic began.

However, some estimates predict the wave currently sweeping the country could infect up to 60% of China’s 1.4 billion population.

“The number of cases is starting to increase outside of the big cities, which means the virus is moving and we should see further disruption,” Fraser said.

Even before the COVID-19 epidemic began to stymie companies in China, the world’s second-largest economy was already collapsing from efforts to quell the outbreak, due to tight movement controls and Repeated blockades have hampered consumption and production.

China’s factory output and retail sales hit their worst levels in six months in November, before the bulk of COVID-19 restrictions were lifted in early December.

Retail sales fell 5.9% year-on-year amid widespread weakness in the services sector, while auto production fell 9.9%, ranging from an 8.6% gain in October.

LOGISTICS LOG

Leading automotive chipmaker Renesas Electronics Corp suspended production at its Beijing factory last Friday due to COVID-19 infection, but said it would reopen on Tuesday.

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

China’s “closed-loop” system, where employees are isolated from the wider world and once trusted by many factories in China during the COVID-free period, is starting, Wuttke added. collapsed as the epidemic spread into the workforce.

“You have to be prepared for your people to shut it down before they get this fever, which basically overshadows their judgment if they’re on the machine side, for example.”

A senior executive at a major automaker said keeping skilled workers at the plant amid a spike in infections is just one of the problems they face.

“If the truck driver has a problem, goods can’t be delivered to factories, factories can’t deliver vehicles to stores, and the entire industry chain is affected,” he said.

One senior manager, who works in the heavy truck industry, said the dealers he spoke to were either infected or were taking care of sick family members.

“Basically everything has stalled and you can’t do any actual business,” he said. Both executives declined to be identified because they were not authorized to speak to the media.

China’s position as an important link in the global supply chain and a key sales driver for many global consumer goods companies means that production volume is low. Exports and consumer demand will be affected more across borders.

Shanghai’s prolonged lockdown in April and May disrupted the supply chains of multinational companies including Apple (NASDAQ:), Tesla (NASDAQ:), Adidas (OTC:) and Estée Lauder .

For now, however, that impact is being limited in part by economic difficulties elsewhere in the world that reduce demand for products from China.

“Decreased demand in the US and Europe for consumer goods may mask some of the impact,” said Jonathan Chitayat, Asia director at Shanghai-based Genimex Group, a contract manufacturer for many type of consumer products, said.

Working in favor of manufacturers as a growing proportion of the workforce is infected in the months ahead is the Lunar New Year holiday, when many factories close for at least a month as workers return home .

Although the worst effects of the wave are still looming, some businesses in China remain relatively optimistic about the future, once the initial wave of infections subsides.

“Most of my clients are heavily in debt right now, so they’re all going to try to entertain people and try to get the deals through,” said Dillon King, co-founder of a private equity firm. import food and beverage company. Company.

“I’m optimistic for this year coming up, but have certainly felt pain in the past few weeks.”



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