Tech supply chains brace for impact as China shifts from zero-COVID to rampant COVID

Hundreds of millions of cases expected to bring new waves of disruption

One of COVID-19's many side effects was to disrupt the technology industry's supply chains – especially when they linked to China.

Beijing's policy not to tolerate even small numbers of infections – and the resulting strict lockdowns and movement restrictions – meant its factories and transport infrastructure often operated well below capacity from 2020 to 2022.

But in recent weeks China has stopped ordering shutdowns. Citizens who catch COVID-19 are required to self-isolate, but cities will stay open even as infection spreads.

Experts predict that things will not go well.

According to Hong Kong University professor of epidemiology Ben Cowling, the Chinese population is skipping straight from containment to a "return to normal" without implementing interim mitigation measures.

Cowling believes that jump may create chaos. "I hope there's a plan for intense mitigation measures in China in the next one to two months, as part of the transition to living with COVID,” he tweeted.

Feng Zijian, a former director at the Chinese Center for Disease Control and Prevention, predicted at a Tsinghua University event two weeks ago that at least 80 to 90 percent of China's population will eventually catch the virus, according to state-sponsored media.

Feng said mathematical models predicted the first post-rule relaxation wave would peak with the infection rate hitting a whopping 60 percent of the population. The US, which did not institute containment restrictions anywhere near as strict as those of China, hit a rate of infections close to this (57.7 percent) only in February 2022 – a little over two years after the first case was reported on American soil.

A study published by Nature in May 2022 predicted that in the six months following China ditching its COVID restrictions, its citizens will experience 112 million symptomatic cases, 1.6 million deaths and demand for intensive medical care 15.6 times greater than national capacity.

Complicating matters further is that China's citizenry has not rushed to be vaccinated against the virus, and even those that have may not have strong protection.

The country reported around 30 percent of its population aged 60 years or older were not vaccinated as of mid-November.

Some studies have found that China's own vaccines are less effective than those used in other nations. One found that recipients of the Sinovac-CoronaVac or Sinopharm jabs were respectively 2.37 times and 1.62 times more likely to be infected that those who received Pfizer-BioNTech/Comirnaty vaccinations.

The good, the bad, and the unknown

If Feng's prediction is correct, China could see 60 percent of its 1.4 billion-strong population quickly catch COVID. That's over 800 million people.

What will that mean for supply chains?

Initially, good things.

"As China leaves a zero-COVID policy behind, in the immediate term, we expect this will bring some recovery to the factories' capacity, export and pressure relief to the workers," Gartner senior director Teh Leng Tan told The Register.

But as infections spread, the situation may worsen.

"However, there are headwinds in the coming months that need to be monitored closely," warned Tan.

The sharp increase of an abrupt policy reversal could be exacerbated by increased travel during the Lunar New Year period come February.

"If the number of COVID cases in China rises significantly over the next months, the workforce availability will be impacted, and the authorities could tighten the control measures. Hence, in the near term, China's supply chain might be subjected to some disruptions before it stabilizes towards mid-2023."

With the IMF already reporting last October a slowing of global growth from 6.0 percent in 2021 to 3.2 percent in 2022 and further to 2.7 percent in 2023, the world might just want to brace itself for China's big change.

The world has already seen how China can impact supply chains.

In 2020 and 2021 many key tech commodities – from networking kit to memory, smartphones and semiconductors – became harder to find, pushing up prices and making finished products hard to get.

PC shipments surged, but datacenter construction stuttered.

Those early disruptions faded, only for 2022 to deliver shorter, sharper, shocks as individual cities such as Shanghai and Shenzhen shut down.

China's more relaxed policies mean shutdowns may be off the agenda. But it is foreseeable that tens or even hundreds of thousands of workers in China's dense megacities will be absent with illness in coming weeks and months.

Just how employers will keep remaining workers at their posts is not known – but employees are clearly tired of being corralled at work. Mega-manufacturer Foxconn's Shanghai plants erupted into protests when workers were shut in their dorms in an attempt to contain existing COVID cases and keep iPhone production lines pumping.

Protests of that sort, and others, are felt to have spurred Beijing to reset policy and put China on a path to living with COVID.

The tech industry has, therefore, to some degree set in motion the changes the Chinese people – and those who depend on their efforts – will have to endure. ®