Will lifting of lockdown in Shanghai help global supply chains to recover after bruising few months?

Tue 31 May 2022
Posted by: William Barns-Graham
Trade News

china covid

The two-month lockdown in Shanghai that has disrupted Chinese exports and global supply chains is to begin being eased from 1 June.

Most of the city’s 25 million residents will be able to go back to work, leave their buildings and use public transport, although masks, testing and quarantine will still be in use.

Resumption

The Register reports claims from officials that 1,700 “key production-oriented enterprises in the region have resumed work and production,” as have 450 key financial institutions and 580 key foreign trade enterprises. In addition, 88% of e-commerce warehouses have resumed operations.

According to Reuters it is unclear whether firms, shops and supermarkets must continue to adhere to the ‘closed loop’ management system in order to reopen.

Companies have called such requirements problematic as they must find ways for workers to sleep on site and carry out regular disinfection.

Economy battered

Faced with such tough Covid-regulations, economic activity in China has been hit hard with firms operating well below capacity.

Bloomberg reports that Chinese economic targets are in “tatters” due to the Covid lockdowns, with the country almost certain to miss its economic growth target by a large margin for the first time ever.

Shanghai port, which handles one-fifth of China’s shipping volumes, has been operating at severely reduced capacity during the lockdown, with shipments either been cancelled, postponed or rerouted to other Chinese mega-ports such as Ningbo-Zhousan, according to the Conversation.

Delays ahead

On fully reopening on June 1, Shanghai port is going to enter overdrive as manufacturers try to clear backlogs of orders, with serious knock-on effects around the world as a torrent of products head west.

The FT reports that this will lead to bottlenecks and delays at western ports in the coming weeks, while heightened demand for ships potentially affecting freight prices.

Supply chain disruption from China is also compounding the ongoing war-related blockages in Ukraine and the accompanying rising energy prices.

Remake supply chains

In the longer term, companies are rethinking their supply chains to make them more resilient to future threats with a move from ‘just in time’ to ‘just in case’, according to a recent survey by Make UK.

Verity Davidge, director of policy, said: “The rules of supply chain are being re-drawn. Resilience trumps efficiency with winners being those who have been able to rapidly adjust their supply chain strategies to accommodate the succession of shocks.”