Shanghai lockdown: Chinese tech execs warn of supply-chain chaos

'Severe consequences' for industry ... and anyone setting foot outside

As at least some parts of Shanghai enter their fourth week of lockdown, Chinese tech executives have highlighted how measures to prevent the spread of COVID-19 will affect supply chains and industry.

In a Weibo post late last week (which The Register has machine-translated), He Xiaopeng, CEO of electric car company Xpeng, wrote: "All OEMs in China may have to suspend production in May if Shanghai and surrounding supply chain companies cannot find a way to dynamically resume work and production."

Huawei executive Yu Chengdong reportedly stepped up that message the next day in his WeChat Moments – a feature of the app that is used to share captioned photos, statuses, and websites among a closed group of people. Yu worried all tech and industrial players who rely on Shanghai factories for supplies will come to a complete halt, especially those in automotive, creating "severe consequences and losses for the whole industry."

Yu, who serves as chief executive of Huawei's consumer business group and smart car solution unit, added that businesses were already on hold since mid-April because of lockdown-induced supply chain disruptions.

The 25-million-plus residents of Shanghai have been under lockdown starting March 28. Around 372,000 infections were reported in the city since March 1, of which 16 were considered "severe," and among those were three deaths, apparently. Over the weekend, new cases reportedly declined ten per cent.

With residents – including those who work in logistics, such as delivery drivers – confined to their homes under strict lockdown, many have reported difficulty getting food, medicine, and other essentials. The government has delivered vegetable boxes to registered residents, though many have said the supplies are not enough and they are still hungry. Those who are tech-savvy battle to secure food with e-commerce apps, and those who are not must manage the best they can.

Individuals are not allowed to leave their homes, not even to take supplies to less savvy elderly parents.

Neighbor interactions are mainly through social apps like WeChat – especially as they embark on community buying schemes to increase their odds of securing food and supplies – or at regular community COVID testing. Or also as they scream out their windows in frustration, as sometimes seen and heard on social media.

On April 11, people living in the city's zones without a positive case for two weeks were allowed to step outside, resulting in videos of socially-distanced dazed individuals bumbling about in roped off areas gleefully absorbing vitamin D.

And it's not just residents isolated: trucks from other cities have difficulty entering Shanghai, and reports have emerged of truckers stuck on highways. That is, if a trucker is willing to drive to Shanghai and risk being stuck there quarantining.

It goes without saying that workers in manufacturing are also unable to travel to their jobs.

With the population more and more frustrated, authorities have taken measures to warn residents not to complain – including blocking hunger-associated hashtags from social media, and posting signs warning of the perils of the internet.

The lockdown is not only tough, it also shows no signs of ending. While Shanghai city officials have said they would allow some activity by residents, Chinese President Xi Jinping made it clear on Wednesday everyone should lower their expectations.

According to state-sponsored Xinhua News, the president said: "Prevention and control work cannot be relaxed," adding "persistence is victory."

It's not only Chinese automakers facing the ramifications of shutdowns. Tesla, which has delayed the manufacture of 40,000 vehicles since it shut down in the city on March 28, is reportedly planning to restart limited production this week with the blessing of the authorities.

Meanwhile, the squeeze on Apple's component suppliers isn't improving. Just west of Shanghai sits Kunshan City – a major electronics production hub and home to Pegatron and Luxshare Precision Industry. The area has been under lockdown since April 12. Pegatron, which builds iPhones, has suspended production in Shanghai and Kunshan.

Foxconn and Luxshare Precision Kunshan were under "closed loops systems" as of last week – meaning staff are living and working on site while undergoing COVID-19 testing daily.

To the southwest of Shanghai, in the Sonjiang District, sits Quanta Computers – MacBook maker and supplier to Dell, HP, Acer, and more. The Taiwanese giant announced it had suspended Shanghai operations on April 13.

As TrendForce put it, the Shanghai and Kunshan pandemic lockdowns have limited the workforce's output, choked logistics, and suspended transport and shipping. The result is that regional computer manufacturers "can only rely on onsite inventory to barely meet the needs of production lines, further exacerbating component mismatches."

Last week the market research firm predicted a short-term surge in finished product shipments as well as heavy demand for material replenishment. As a consequence, when the lockdowns are lifted, import and export authorities will likely face gridlock – delaying deliveries through the end of April.

Trendforce today told The Register it is amending that prediction to early May.

Specifically, electronics makers are predicted to have difficulty securing processors, battery modules, panel materials and certain multi-layer ceramic capacitors (MLCCs) going into things like servers and vehicles, because the components cannot be delivered to relevant factory warehouses.

"At present, ODMs' average inventory level for consumer specification products sits at three to four weeks, which is sufficient to meet the needs of short-term production. However, stocks of certain high-voltage automotive MLCC of 250V or higher specifications and high-end server MLCC size 0805/1206/1210 items may be in danger of depletion," said Trendforce in its canned statement.

While the lockdowns have done China's manufacturing industry no favors, Trendforce points out it has also battled slowed growth as a result of the Russian-Ukrainian war and rising inflation, and is at risk for a recession.

Pre-Shanghai lockdown, analyst firm Forrester predicted slowed tech market growth in China – from 9.7 percent in 2021 to 8.2 percent in 2022. But even with the tech slowdown, the Middle Kingdom is still expected to outpace Asia-Pacific overall.

Reuters reported last Thursday that China's GDP would likely grow by five percent due to the global economic environment as well as its battle to eliminate COVID-19. This figure falls short of Beijing's target of 5.5 per cent.

By comparison, in 2021, the GDP for the Middle Kingdom sat at a high for the decade of an enviable 8.1 percent. ®

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