As Chinese authorities announced a lockdown to curb the surge of COVID-19 cases, several manufacturers including Foxconn have stated that they will be suspending operations in the Chinese tech hub of Shenzhen. Shenzhen is situated near the border with Hong Kong.
Why does Foxconn matter? Well, Foxconn is the world’s biggest contract manufacturer of electronics. It is most important supplier to several companies including Apple and Samsung.
Foxconn says it’s stopping production at its Longhua and Guanlan factories until further notice. The Shenzhen base is Foxconn’s second largest in China.
It's not just Foxconn. A number of Chinese tech giants like Huawei, Tencent, and Oppo are headquartered in Shenzhen as well.
Shenzhen is not alone. Many other cities are witnessing a surge. Jilin, a city in northeast China entered a partial lockdown on Saturday and Yanji, near the border with North Korea, followed suit a day later.
Shanghai, the most populous city in the country and home to major chipmaker SMIC, is also enacting new restrictions from today.
These lockdowns will have an impact not just on China but on the world as well. Shenzhen is not just a tech powerhouse but a key port city too. As a result of the lockdown, it is likely that Shenzhen's port will slow down. This will cause disruption to the supply chain.
Add to this situation the fact that so many goods are manufactured in China, combine it with factories closing and voila - we have a double whammy which will exacerbate supply chain and inflationary pain points.
This situation, if it were to occur, will rhyme with last year's spring, when the city of Shenzhen witnessed a COVID-19 outbreak as well. The result was delayed port operations which caused a surge in global shipping rates, which in turn resulted in price increase for goods that are imported from China (hint: our whole world imports a lot from China).
These knee-jerk lockdowns in China are a result of their 'zero-COVID' policy. Perhaps it is time for Chinese authorities to question if that is a goal worth pursuing.
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