Risk Center

Overall outlook in China stabilizes

The abrupt end of China’s zero-COVID policy in December 2022 caused the virus to spread rapidly across the country. Nearly 250 million of the country’s residents are estimated to have caught the virus between December 1 – 20, with the number of infections increasing to as many as 900 million people, or 65% of the country’s population by mid-January 2023. Official government sources announced  that at least 80,000 people died in the latest outbreak, though this figure is widely regarded as underreported.

Despite the high number of COVID-19 cases and deaths nationwide, it the current wave of infections is nearing an end. China’s National Health Commission indicated that the number of critical COVID-19 cases had dropped by 40% heading into the Lunar New Year holidays. A report by China’s Center for Disease Control and Prevention also revealed that the number of COVID-19 cases and deaths are now on a downward trend and unlikely to surge after the Lunar New Year period, which saw as many as 226 million people travel nationwide from January 22 to 27. The decreasing likelihood of a post-Lunar New Year COVID wave means that more of the country’s population will be able to return to work following the holidays. This should allow businesses to resume normal production and logistics operations more quickly in the short-term.

Short-term manufacturing outlook stabilizes

China’s manufacturing activity is stabilizing as fears subside that a rapid rise in COVID-19 cases would cause long-term disruptions. This marks a notable change in outlook from late December 2022 and early January 2023, when manufacturers in major cities including Shanghai, Shenzhen, and Qingdao warned of production delays due to COVID-19 cases impacting up to 75% of their workforce. Major Chinese ports and logistics companies operating at ports and airports across the country also reported rising congestion due to a lack of truck drivers and on-site workers while infections were peaking in early January 2023.

However, the rapid rate at which COVID-19 spread through the country shortened the length of disruptions. Companies across the country are recovering more quickly than expected. Operations at larger companies and state enterprises have already begun to normalize after the last spike in infections.

Logistics operations show signs of improvement

On the logistics front, supplier delivery times improved from December, indicating that logistics operations across the country are improving even though the sector has not returned to overall growth. China saw recent improvements in business activity for railway, air transportation, and postal operations.

Average vessel wait times at major Chinese ports continued to drop for a second straight week as of February 6 as more workers were able to return to work. Vessel wait times are now near levels last seen around the end of China’s zero-COVID policy in early December, a positive sign that suggests manpower shortages are easing at China’s ports.

Mixed impact of Lunar New Year holidays

The Lunar New Year holiday caused widespread production halts and slowdowns across the country as most Chinese manufacturers shuttered or reduced production to allow employee travel during the holiday season.

Chinese metals manufacturers reported a drop in production during the holiday season due to a combination of declining domestic demand, a spike in COVID-19 infections, and worker holidays. Production cutbacks among metals producers in China could continue beyond the first quarter of 2023 as the government looks to prioritize service sector recovery over China’s battered construction industry.

Holiday-related production stoppages were reported among polyester manufacturers as well, which announced pre-holiday production cuts due to the spike in COVID-19 infections among workers. However, production picked up again across Jiangsu and Zhejiang provinces after the Lunar New Year festival. Nationwide thermal coal output also fell – a sign that the country’s overall energy demand decreased over the New Year.

The recovery of China’s manufacturing industry following the Lunar New Year holidays has been uneven as companies struggle with declining global demand. Small- and medium-sized textile and garment manufacturers are hiring fewer workers at lower salaries due to a lack of new overeas orders.

In contrast, automotive and electronics manufacturers have quickly resumed production following the Lunar New Year. American automaker Tesla indicated that it would be stepping up output at its Shanghai plant over the next two months following months of production slowdowns that began in September 2022.

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

Contact us to learn how we can give you a complete view of the risks affecting your end-to-end supply chain and what you can do to mitigate them.

Share this post