Shanghai-based firms and factories operating well below capacity as lockdowns enter sixth week

Wed 11 May 2022
Posted by: William Barns-Graham
Trade News

china trade

With Covid lockdown measures entering their sixth week, Shanghai businesses continue to be affected by broken supply chains and disrupted logistics.

Even among the 2,000 companies given permission to resume operations under a “closed loop” system, where workers sleep onsite, production is at a fraction of its full capacity.

A survey of 142 Shanghai-based companies by the Shanghai Securities News, reported in South China Morning Post, showed that only 30% of their production capacity was up and running again, as of 7 May.

Bottlenecks

Respondents said a shortage of lorries travelling between Shanghai and neighbouring cities and supply chain bottlenecks had prevented them from getting production facilities back up to full speed.

A poll by the American Chamber of Commerce this week said 15% of white-listed US companies with operations in Shanghai had yet to reopen by 5 May.

Nearly 60% of respondents reported reduced production due to a lack of employees and an inability to get hold of raw materials.

Tesla closures

Tesla has reduced vehicle production at its Shanghai factory this week due to parts shortages, reports CNBC.

The company is also still being affected by China’s strict Covid policy after a case detected at an Aptiv factory in Shanghai led authorities to temporarily close that facility. Aptiv makes cable harnesses for Tesla, and a shortage of this component has led to a temporary shutdown of some of the US firm’s production lines in Shanghai.

According to the Guardian, Tesla’s Shanghai plant planned to manufacture fewer than 200 vehicles on Tuesday, compared to the 1,200 units it had been building each day since shortly after it reopened on 19 April.

Nationwide, China’s passenger car production also plunged in April, dropping by 41.1% year-on-year and by 46.8% compared to the previous month.

Doubling down

China’s president Xi Jinping has doubled down on his controversial zero-Covid commitment in a major speech, reports the Guardian.

He urged officials to “unswervingly adhere to the general policy of dynamic zero-Covid” and warned against any criticism of the policy.

Shanghai remains under strict lockdown conditions and Beijing currently has 518 restricted areas where cases or contacts connected to these cases have been identified, reports Aljazeera.

Services shrink

China’s services sector activity shrank at the second-steepest rate on record in April, according to the Caixin services purchasing managers’ index (PMI) which stood at 36.2 last month.

This is the second lowest since the survey begun in November 2005 and down from 42 in March.

On Wednesday, Starbucks and Yum China – the local owner of the KFC and Pizza Hut brands – warned of falling sales due to the continuing lockdowns.