German companies suffer from lockdowns in China: logistics and supply chains significantly disrupted

Created: 2022-04-02 09:23

By: Christiane Kuehl

Looking out from the quarantine: health workers in the courtyard of a typical Shanghai apartment block in the west of the city.

The western part of Puxi has been in lockdown since Friday.

© HECTOR RETAMAL/AFP

German companies in China are suffering from the current Omicron wave.

Logistics and supply chains in particular are affected.

In an AHK survey, companies would like more transparency and predictability.

Beijing/Shanghai/Munich – Omikron is becoming more and more popular in China*.

New herds are forming across the country;

Shanghai* and the northeast Chinese province of Jilin are currently particularly affected.

In the meantime, this is also having an increasing impact on the economy – including the German companies that produce locally.

In a quick survey by the German Chamber of Foreign Trade (AHK) in China, 51 percent of them indicated “a complete disruption or serious effects on their logistics and warehousing”.

46 percent reported such a disruption for their supply chains.

According to the AHK, companies in the mechanical engineering and industrial plant sectors in particular have problems: logistics and warehousing were affected for 54 percent, and the supply chains for 55 percent.

This means, for example, that important primary products do not reach the factories.

According to the AHK, the automotive and mobility industry is also badly affected.

So far, only seven percent have not felt any effects from the many corona restrictions resulting from the new omicron wave.

China's lockdowns: German companies are clearly feeling the effects of disabilities

"German companies feel it clearly when entire cities with millions of inhabitants are sealed off," says Jens Hildebrandt, Executive Board Member of the AHK for North China.

“But also in the case of selective lockdowns if they are located exactly there or their employees live in the corresponding areas.

This has an impact on supply chains and on-site production.

Production is then usually shut down, trucks can no longer get in or out and employees can’t go to work.”

There are now some restrictions across the country.

Cross-regional transport is difficult because all areas classified as “medium risk” or “high risk” have to be avoided.

"If the driver drives into such an area, an 'asterisk' appears on the mandatory health code, which is generated by mobile phone," Hildebrandt explains to Merkur.de.

"This means that the driver would then have to expect quarantine at the next location, i.e. where he leaves the motorway." Covid tests on goods shipments also hold up the transport.

Containers are sometimes a month longer in the port or in traffic jams at the border, for example between China and Kazakhstan, because of the tests.

German companies in China: resilience has increased, the frustration remains

"What companies need now are signs of stability," the chamber board said in a joint statement.

Two-thirds of the companies surveyed would like timely and transparent communication from local governments about the corona measures.

Almost 40 percent want simpler quarantine rules.

"The general resilience of companies has increased," says Thomas König, Head of China at the Association of German Chambers of Industry and Commerce (DIHK).

They have learned to plan as well as possible despite the unpredictability of the situation."

In Shanghai, for example, larger companies quartered part of their workforce on the factory premises for several days immediately before the lockdown so that they could still work.

They provide beds, food and washing facilities and rotate employees where possible.

Most companies would recognize that the situation was not easy for the authorities either, and would be patient, according to König zu Merkur.de.

"Nevertheless, the situation is frustrating for many on the ground."

Shanghai: Lockdown of the economic center as a trigger for many concerns

The currently circulating Omikron-BA.2 variant puts the government's zero-Covid strategy to the test.

Because if at all, the highly contagious variant can only be halfway contained with the toughest measures.

"In view of the high transferability, it is likely that the situation will still get out of control, as it has escalated in Hong Kong*," suspects König.

The measures taken by the authorities are different everywhere.

"So it will be difficult to always get timely, reliable information about what exactly is being done where on site and to keep track of things."

The lockdown announced at very short notice for Shanghai as the most important economic center in the country* also surprised many German companies.

The entire Yangtze River Delta around the metropolis is one of the best developed production strongholds in the country.

German companies also manufacture on a large scale in the region.

There are now numerous smaller corona hotspots throughout the delta.

In addition, Shanghai is the most important transport hub and gateway for export products to the world for all these locations.

Shanghai's Yangshan deep-water port handled 22.8 million TEU containers last year, making it the world's busiest port.

However, due to the lockdown in the eastern part of Shanghai, Yangshan and the nearby port of Waigaoqiao will initially operate at only half their capacity until Friday amid strict quarantine and testing procedures.

The city's two airports have also been reduced to a minimum.

Air freight can arrive there and also through customs clearance, says Jens Hildebrandt.

"The freight can then no longer be transported, because hardly any trucks can drive on Pudong's roads."

A third of German companies complained in the AHK survey that exports to Europe were being affected.

Many of these are likely to be affected by the Shanghai lockdown.

Omicron in China should therefore soon be noticeable again in Germany.

Shanghai: VW plant in the west of the city is at a standstill

Many companies are trying to continue producing despite the lockdown in Shanghai.

But that is less and less successful.

Unlike planned, Volkswagen had to stop production on Friday at its plant in the western suburb of Anting.

According to a spokeswoman, only maintenance work will be carried out there until Tuesday.

Production is only carried out in the press shop.

Cars didn't roll off the assembly line.

VW and its Chinese joint venture partner Shanghai Automotive (SAIC) had previously planned to maintain at least parts of production.

To this end, employees should voluntarily live and work isolated on the factory premises in a “closed circuit” like in a bubble, just like at other companies.

However, the plant had to be partially shut down on Thursday because supplier parts were missing.

This shows how unpredictable the situation is.

Many companies in Shanghai are like VW.

Toyota and Tesla also report failures, as do numerous suppliers.

VW and Toyota are hit twice: both companies have already had to stop production in Jilin's provincial capital Changchun, which has been in lockdown for more than two weeks.

China in the omicron wave: The whole economy is affected

The lockdowns are also likely to have an impact on the economy as a whole.

Analysts at the Swiss bank UBS are assuming only four percent growth this year.

Premier Li Keqiang* had given 5.5 percent as the target at the National People's Congress less than a month ago.

At that time, Beijing had probably still hoped that Omicron could be limited to individual outbreaks.

And it was before it became clear that the Ukraine war would not be won by Moscow at lightning speed, but was increasingly becoming a bloody trench war.

The Ukraine war* also leaves its mark on German companies in China.

46 percent of the German companies surveyed are affected in their logistics between China and Europe, 57 percent stated that the current geopolitical crisis is affecting the China strategy of their headquarters.

55 percent are suffering from rising energy and material costs, especially the smaller companies in China.

Due to the crisis, 32 percent of those surveyed expect planned business or investments in China to be put on hold.

China: German companies want to reduce dependency

Almost half of all German industrial companies depend on important inputs from China.

In view of the situation and also the tensions with China, many want to reduce this dependency.

This in turn emerges from a recent survey by the Munich ifo Institute.

“46 percent of all companies in the manufacturing sector state that they purchase significant inputs from China.

Almost half of these companies are planning to reduce these imports from China in the future," said Lisandra Flach, head of the ifo Center for Foreign Trade, on Thursday.

The companies want to diversify their sources of supply more, reduce costs and risks in logistics and arm themselves against political uncertainty.

“However, Germany is dependent on China for several specific industrial goods and raw materials,”

So there will be no hasty decoupling.

“If Germany abruptly decouples from the Chinese economy, specific and important supply chains would be disrupted.

It is therefore necessary to make greater efforts to diversify critical goods and raw materials at European level," said Andreas Baur, who wrote an article in the ifo Schnelldienst together with Flach.

“The EU countries should approach Beijing with the greatest possible unity.

That will be decisive for the future of trade relations with China.” (ck)