With COVID-19 flaring up across China, major manufacturers are shutting factories, ports are clogging up and workers are in short supply as officials impose city lockdowns and mass testing on a scale unseen in nearly two years.
The prospect of continued disruptions in the world’s second-largest economy, which has a zero-tolerance strategy for combating the pandemic, is heightening fears that the disruptions will ripple through the global economy. Already, companies including memory-chip maker Samsung Electronics Co., German automaker Volkswagen AG and a textiles company that supplies Nike Inc. and Adidas AG are suffering production hitches.
Since late December, officials have taken measures to counter Covid-19 outbreaks in several Chinese cities, including the eastern port of Tianjin, Xi’an in central China, and the southern technology hub of Shenzhen. The world’s third-busiest container port of Ningbo-Zhoushan, near Shanghai, risks worsening backlogs from restrictions on trucks and warehouse operations after more than two dozen Covid-19 cases were confirmed in the surrounding area.
Chinese authorities are adhering to the same playbook that successfully curtailed initial outbreaks of the pandemic and caused intermittent disruptions to production and supply chains.
The potential consequences are more severe this time, economists warn, because of the highly contagious nature of Omicron, which has been detected in some areas of China. The variant is hitting the country as Beijing seeks to contain outbreaks ahead of the Winter Olympics, which are set to begin on Feb. 4.
"The risk posed by the Omicron variant is that we could take a huge step back in terms of supply-chain bottlenecks," said Frederic Neumann, co-head of Asian Economics Research at HSBC. "This time, the situation could be even more challenging than last year given China’s increasingly significant role in global supply."
Several economists said China may escalate its containment policy and some have touted the possibility of a nationwide lockdown, unseen since April 2020. Goldman Sachs on Tuesday cut China’s 2022 growth forecast to 4.3% from 4.8% in light of the latest Covid-19 developments.
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