Risk Center

Chinese factories close early for Lunar New Year

Everstream Team | December 15, 2022

During the period from August to November 2022, there has been a gradual decline in the shipment of goods from China to the United States. Manufacturing orders in China from the U.S. are currently down by 40%. At U.S. West Coast and East Coast ports, the volume and capacity of Chinese goods have experienced a steep decline, with latest numbers showing that total twenty-foot equivalent (TEU) volume decreased by 21%. At the same time, logistics operators in the U.S. expect delays in the delivery of goods from China due to ocean carriers issuing blank sailings for container ships.

This notable decline can be attributed to a few factors: Recent sanctions on technology companies in China, a general decrease in U.S. market demand, and persistent COVID-19 restrictions in China that inspired U.S. companies to pivot manufacturing operations elsewhere. The decline is likely to result in factories closing earlier than expected before the Chinese New Year on January 22, 2023, causing additional delays for goods from China until at least the end of Q1 2023.

COVID-19 restrictions remain major cause of production disruption in China

Manufacturing activities in China continue to experience disturbances due to the ongoing COVID-19 situation across the country. Localized disruptions are still expected to occur despite the recent ease in restrictions following widespread protests against the government’s zero-Covid policy.

In November, China experienced one of the worst virus outbreaks since 2020 as the highly contagious COVID-19 Omicron variant spread across the country. The average number of new cases recorded in the last week of November hit 38,000 daily, with stringent lockdowns implemented in multiple production hubs.

On December 7, the government announced plans to ease some of its most stringent COVID-19 measures to boost economic development. However, while this may protect factories from being shut down on short notice in the future, manufacturers will likely experience another round of operational disruptions due to potential labor shortages caused by infection surges and the absence of workers who fled previous lockdown measures.

Manufacturers in China to shut down before Chinese New Year due to market downturn

Chinese factories typically shut down for seven days during the Chinese Lunar New Year period. However, demand contractions will likely cause manufacturers to suspend production even further in advance to the public holiday week, which starts on January 21, 2023. Some Chinese factories have already scheduled production halts that are earlier than expected, especially in the ceramics, steel, and textile sectors.

In the ceramics industry, companies in Guangdong Province have entered maintenance as early as December and won’t resume operation until February 1. Steel mills in Guangdong and Guangxi provinces have also faced unstable operating conditions due to lowered demand and disruptions to raw materials supplies.

Regarding the textile sector, overstocking of yarns has occurred due to the lowered domestic and international demand. As lower demand for its products persists, textile output will likely be impacted further, which might lead to some shutdowns earlier before Chinese New Year.

Everstream clients are receiving more detailed insights and recommendations about this risk.

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