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Officials at South China’s production center, Shenzhen, ordered a hundred major companies, including iPhone maker Foxconn, drone maker DJI and automaker BYD, to apply a “closed loop” containment formula to keep their factories open in the face of a COVID outbreak in the city. a leaked government opinion was revealed.
The COVID outbreak and the arrangement of bubbles, which well isolate factories from their stage and force painters to live and paint on site, threaten to derail production in Shenzhen, a city that produces 90% of the world’s electronics and is referred to as “the factory of the world. “
This drastic action echoes prolonged plant closures in Shanghai in the last quarter and may exacerbate a global supply chain crisis that already threatens economic expansion in countries around the world.
Shenzhen on Tuesday showed 22 new cases of COVID-19, a figure that virtually every country in the world, unless China, would be negligible. containment measures and testing to curb the spread of the virus.
China has not shied away from this policy, even though Omicron and its highly infectious subvariant BA. 5 have made it more costly for Beijing to implement its zero COVID policy. According to Nomura, 260 million other people in China have been in partial or total lockdown since this week.
While “closed-loop” formulas are meant to minimize COVID-related disruptions, allowing brands to continue operating while containing positive cases, Tommy Wu, lead economist for the economy at Oxford in Hong Kong, says the formula likely creates ripple effects. that create tension along critical supply chains.
“The closed-loop agreement will allow giant brands that have the resources to space their staff in their services for production,” said Tommy Wu, lead economist at Oxford Economics in Hong Kong. “However, many [companies] don’t have enough capacity to accommodate all their staff on site. . . and many brands can only partially exploit. “
Large brands rely on small brands for important parts. If those small factories shut down or reduce production, giant brands can’t run their own meeting lines. Wu says applying a closed loop in some factories can simply “create a chain reaction elsewhere. “and lead to disruptions in global supply chains.
China’s economy has just recovered from its latest primary COVID outbreak, when endemic cases of Omicron in Shanghai prompted months of plant closures and closures in April and May. % in the current quarter to last year, marking China’s worst quarterly expansion since the pandemic began.
Shanghai also implemented a closed-loop agreement to restart production amid the city’s outbreak. But the closed-loop formula was affected by the fact that the rest of the city was absolutely blocked. Workers struggled to get to the factories where they worked or not. I have to settle for having to sleep in the factories. It is also difficult to move goods while the city’s transport routes are absolutely closed.
“They use a closed circuit to check if part of the production is still alive. But I think some [closed-loop factories] are closed. . . [The factories] didn’t run steadily,” said Ganesh Moorthy, chief semiconductor officer. Corporate Microchip Technology, which has a component of its origin chain in Shanghai. time.
U. S. electric vehicle giant Tesla’s Gigafactory, for example, reopened in mid-April after weeks of total shutdown. But the plant resumed full production until two months later, in mid-June, once Shanghai’s closed-loop policy ended.
The good news is that the existing wave in Shenzhen will probably be less difficult to engage with than the one in Shanghai. Shanghai records several thousand cases a day at the height of its epidemic, compared to a few dozen in Shenzhen today. The port of Shenzhen, the fourth largest in the world, has not yet suffered any operational disruption.
“China’s supply chain has held up well over the past two years, so my baseline situation is for disruption to be limited,” said Larry Hu, lead China economist at Macquarie. “Certainly, the threat is still there. “
This tale originally appeared in Fortune. com