January 29, 2021

Could Rising COVID-19 Cases In China Before CNY ‘21 Affect Supply Chains?

In This Episode...

Adrian and Renaud discuss the rising number of COVID-19 cases in China barely a week or so before the Chinese New Year holiday is set to happen where tens of millions of people will travel home around the country.

The outbreak is centered on the North of the country at present, but if it were to spread this could lead to lockdowns throughout the country and the authorities are already raising alertness and preparations to suppress its spread as much as possible.

If you have a supply chain in China it's important to understand how this may affect the holiday, Chinese workers travelling around the country, and your suppliers.

Let's hear what's happening from China directly...

Show Notes

00:00 - Introducing the episode

02:55 - What's the situation with coronavirus in China right now (Jan 28th 2021) and how may it affect manufacturing? Explaining the logistics of tens of millions of people moving around the country during this period. Why the government doesn't want a repeat of the Hubei lockdown.

09:20 - How large family meals and meeting other large households during CNY increases the risks.

10:58 - Could restrictions be more centered around the North of China, or more widespread? There are low, medium, and high-risk areas. Local governments have told companies to try to limit employees travelling home at all and requested stricter adherence to rules, such as mask-wearing. Government employees have been barred from travelling, but private company employees can travel.

14:03 - How tighter travel restrictions have caused perverse effects on the manufacturing industry in China earlier than usual. Knowing that travel will become more difficult and there may be quarantine periods (away from the family) for inter-province travellers, some staff have left to go home for CNY earlier than ever. In the case of key workers, such as machine specialists, this has affected factory productivity and output if there is no one else there who can do their jobs. So some factories have been forced to stop certain work 2 to 3 weeks earlier than usual.

17:53 - Why a lot of Chinese exporters are suffering, despite the 'boom' in exports. The unfavorable exchange rate is not helping companies who export from China, nor is the crazy logistics situation.

19:10 - If many workers don't travel home for CNY and opt to stay in the cities where they work, could this mean that factories get back to work sooner than usual after the holiday? It could be the case, especially in purely assembly or packing facilities which can operate of key people are not present. One problem could be that quality inspectors haven't gone back to work yet, though, which could lead to poorer quality products after CNY than usual.

20:44 - What's the worst-case scenario for importers with a Chinese supply chain? If very strict preventive measures are taken it could put a lot of workers in quarantine upon arrival back to their company's city from their hometown. If areas or provinces are locked down, this could affect your supply from companies in those areas (this happened with Hubei in 2020).

24:08 - A breakdown of some of the restrictions in place (based on info from Sofeast's HR manager in Guangdong). People who travel will need to show a negative test within a week of travelling and on return from some areas will have a mandatory 14 days of health monitoring at home. Restrictions could be stricter for medium/high-risk regions, for instance requiring a negative test within just a few days of travelling and, potentially, quarantining outside of home. The situation is changing every day, so by the time CNY occurs restrictions could be different again. 

25:57 - Have any of Sofeast's staff decided not to travel? Yes, although others are waiting until closer to the time to see what happens with restrictions before making a final decision.

27:03 - Key points for importers to focus on during this time. Keep an eye on your suppliers, especially if they're in an area which is moved into medium/high-risk. Also consider sub-suppliers, as if they are locked down it could disrupt your suppliers' ability to fulfil your orders regardless of whether they're at work or not.

27:50 - The situation in Hong Kong. Given that some importers may have suppliers in Hong Kong, too, or wish to travel there, the situation has also recently become complicated due to a couple of localized outbreaks in Kowloon. HK has changed its approach to follow Mainland China more closely, now enforcing 3 weeks of quarantine in a hotel. Visitors can still travel to Hong Kong, unlike China which is only permitting a very limited list of foreign arrivals right now (such as people with a work permit).

31:35 - Wrapping up the episode.

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