Shanghai’s plan to reset the supply chain will hit workers hardest

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Like many people In Shanghai, Joyce has spent weeks cooped up at home since the last Covid-19 lockdown was imposed on March 28. A software industry executive who asked to be identified only by her first name to avoid scrutiny from authorities says she has suffered food shortages and the complex where she lives resorts to “group buying” where different people are responsible for the purchase as much of a particular product as possible for the community.

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“A lot of people struggle with being at home because they literally have no income,” she says. Group purchases are “three to four or five times more expensive than normal days, and not cheap in Shanghai.”

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Faced with this dire situation, the central government in Beijing has made restarting Shanghai’s industrial sector a priority. Liu Hechinese vice premier, announced this week that the government will seek to stabilize the country’s supply chain by helping 666 companies in Covid-ravaged Shanghai restart their operations. Doing it while the city continues to fight the worst in China COVID-19 the outbreak since the beginning of the pandemic could prove to be a huge challenge – and it may not be possible to contain the disruptions that the global supply chain could feel in the coming weeks or months.

The government has announced a “white list” of Shanghai companies that it will help reopen on April 15, out of an estimated 50,000 companies operating in the area. The list includes domestic and foreign firms that make key contributions to the supply chain, such as manufacturers of semiconductor components, automotive parts, and medical supplies. Tesla’s Shanghai factory reportedly reopened already now, with workers locked in a loop but deliveries of many components still closed, it is unclear how much of the production line is running.

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The government may decide that it has no choice but to start industrial activities, although the situation in Shanghai is not yet fully under control. On Monday, China’s National Bureau of Statistics released economic data showing that while the economy grew 4.8 percent in the first quarter of 2022 compared to the same period in 2021, economic activity slowed in March in Shanghai and other quarantined cities.

“People here have mixed feelings” about reopening because they see it as part of a PR exercise, Joyce says. “Most companies will ask people to live in a factory, but how are you going to do that? People may not be allowed to go home.”

Some factories have been able to continue operations while minimizing the risk of Covid outbreaks by working with workers locked in a “closed loop” meaning they must stay inside the factory, eat there and reportedly sleep on the floor in some cases, for days. or even weeks in a row.

Many workers will need permission to leave the area where they live and then risk not being allowed to return. Some factory managers are unsure if workers will show up. One Shanghai electronics factory, which asked not to be identified because it risked upsetting authorities, says its plant is successfully implementing closed loop technology. But he worries that it may be difficult to find enough workers for each new shift.

Fiona Yupartner of a Chinese investment company Northern Lights Venture Capital, who also lives in Shanghai, says the lockdown has been difficult but manageable. She believes that people are capable of getting enough food, even if not quite what they would like. “I think most people, especially young people, are ready to go and work,” she says.

But Yu says some of the companies her firm has invested in have struggled. Some had to suspend work due to a lack of hardware components. Some entrepreneurs even had to sleep in their labs to ensure that important biotech experiments were not disrupted. “They suffer, but they do it,” she says.

Shanghai is a particularly important producer of key components for the automotive and electronic industries, as well as an important shipping hub. Restarting factories will generate income for some workers, but global supply will benefit the most. At least 249 of the 666 companies earmarked for reopening by the government are automakers, according to Everstream Analytics, a company that provides supply chain data.

China is currently experiencing some of the most draconian government measures in the world as it struggles to maintain its “zero covidstrategy against infectious Omicron virus variant.

Numerous cities and regions in China were partially or completely blocked in recent weeks, but the situation in Shanghai, where Covid was able to spread before it was aggressively dealt with, was particularly serious. There have been reports of residents of one of China’s richest and most cosmopolitan cities. starve and be refused hospital treatment in severe illnesses. The city has recorded more than 400,000 cases of Covid infection, a huge number by China’s standards, but according to official figures, just 17 deaths – a figure that some experts ask.

In addition to the hardships faced by the people of Shanghai, the quarantine has led to the closure of factories and the closure of transport routes. Hundreds of flights were canceledroads are empty because of truck drivers it is required to follow the rules of testing and strict quarantineand shipping containers stuck at sea. Windward, a company that collects and analyzes shipping data, found in early April that one in five container ships in the world were waiting outside of congested ports, with almost 30 percent waiting to enter Chinese ports, from Shenzhen in the south to Beijing in the south. . north. By April 11, there were about 197 ships outside of Shanghai and Ningbo, up 17% from a month earlier. according to Bloomberg.

Difficulties in Shanghai could also cause shortages of goods around the world, further complicating the global supply chain. already hit hard a combination of factors, including unprecedented demand for goods caused by the pandemic, trade disputes between the US and China, and the recent Russian invasion of Ukraine.

Even with the government’s efforts, the global electronics industry could be hit hard by the situation in Shanghai. “In the most realistic scenarios, a full normalization of manufacturing operations at key electronics suppliers will not be possible until late April or early May,” says Julie Gerdeman, CEO of Everstream.

Kunshan District [of Shanghai] has long been a stronghold for Taiwanese firms operating in China,” says Willie Shea, a Harvard professor who tracks China’s manufacturing sector. Many electronics makers, including Apple, HP and Dell, could face shortages in the coming weeks.

And even if enough workers are found to bring factories back to full production capacity, Covid could cause further disruptions. Factories will aim to keep workers indoors for the long haul with regular testing and rigorous hygiene measures, but it may not be possible to prevent some outbreaks. “Who is in the subject and who is not?” Shi says. “Eventually – and probably sooner rather than later – you’re going to need something custom.”

“This is a very, very dangerous situation,” says Zvi Schreiber, CEO Frygtos, a delivery market that works with Chinese manufacturers. “In fact, there is no completely closed cycle; you can’t completely avoid it.”

Restarting factories will also depend on people willing to experience even more hardship by being locked inside factories and risking exposure to the virus. By law, workers must be paid while their factories are on vacation, but this is not always the case. “I hope things get better, especially for the less privileged,” says Joyce. She says that for many people in Shanghai, “the only thing we know is to just stay at home.”

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