How China’s Zero-COVID Strategy Threatens the Global Supply Chain
As the omicron variant continues to spread, businesses across the world are facing an ever tightening supply chain. The recent outbreaks of both the omicron and delta variants in China – which are liable to be accelerated by upcoming major events like the Chinese New Year and the Winter Olympics – are particularly concerning in light of China’s strict Zero-COVID strategy. In this article, we explore the potential impact of China’s Zero-COVID strategy on the global supply chain.
Zero-COVID Strategy: An Overview
Since the beginning of the pandemic, China has embraced a Zero-COVID strategy, which seeks to fully extinguish community spread. Zero-COVID is rooted in strict lockdowns, heavy border restrictions, prolific testing, and in-depth contact tracing.
China’s lockdown-oriented Zero-COVID strategy runs in contrast to the approach of nations like the United States and the United Kingdom. According to Dr. Huang Yanzhong, from the New-York based Council on Foreign Relations, “the zero-tolerance strategy is also part of the official narrative, to claim the success of the Chinese pandemic response model, the superiority of the Chinese political system. So if you give up that strategy, and then you saw [sic] the cases increasing significantly, you know that would lead people to question the model.”
In China, the omicron variant has already spurred multiple lockdowns in cities and ports across the country. The ongoing lockdown in Xi’an, for example, presents a sobering picture of the impact a regional lockdown can have on the global supply chain. Xi’an houses two of the world’s leading producers of semiconductors and memory chips, Samsung and Micron, and the prolonged shutdown is already creating problems for the technology sector.
Recent Lockdowns in China
Recent outbreaks of both delta and omicron have forced multiple city-wide lockdowns in China. In the last few weeks, the Chinese government has taken the following steps:
Hong Kong banned transit passengers from 150 locations across China.
The city of Xi’an has been under lockdown for several weeks.
Yuzhou, 434 miles south of Beijing, locked down 1.1 million people earlier in January.
In Tianjin, a port near Beijing, 14 million people have been asked to remain in their homes and take part in mandatory testing.
Shenzhen, a city in southern China, has instituted lockdowns of housing compounds and has mandated mass testing.
Since January 10, 2022, five and a half million residents have been locked down in the city of Anyang. They are required to stay in their homes and are not allowed to drive.
Just today, Beijing locked down an office building with workers still inside; government personnel carted boxes of pillows and bedding through the heavily monitored entrance for the occupants.
Accelerating the Spread: Chinese New Year & Winter Olympics
As omicron continues to proliferate, other Zero-COVID nations like Australia and New Zealand have shifted away from their strict policies due to the virus’ near unprecedented communicability. China, however, shows no signs of changing strategies. With the Chinese New Year approaching, therefore, concerns about China’s ability to maintain such strict protocols (which will seemingly shut the whole country down before too long) while still meeting the demands of the global supply chain are growing. Here’s what we know:
Chinese New Year: In China, the Chinese New Year, also known as the Lunar New Year and the Spring Festival, is the biggest holiday event of the year. Hundreds of millions of people travel home for one or more weeks – making it something like Thanksgiving or Christmas in the United States, but on a much larger scale and over a significantly longer period of time. In 2022, the Chinese New Year falls on Tuesday, February 1 and unofficially ends with the Lantern Festival on Friday, February 15. This travel-heavy holiday has the potential to spread COVID-19, which would trigger widespread lockdowns and accompanying supply chain delays.
Winter Olympics: The Winter Olympics will also take place this February in Beijing. For the first time since the beginning of the pandemic, China is allowing foreign visitors to enter the country under heavy restrictions – tickets will not be available for the general public, and groups of visitors will be closely monitored. As temperatures drop, transmission rates will naturally increase, so it remains to be seen whether China’s precautionary measures will hold up against omicron.
What Does This Mean for eCommerce Sellers?
If omicron’s spread is exacerbated by both the Chinese New Year and the Winter Olympics, prolonged nationwide shutdowns are very much a possibility given China’s Zero-COVID approach. If such lockdowns become China’s new normal, eCommerce sellers (and especially dropshippers) should expect to see manufacturing bottlenecks, tight freight capacity requirements, slower transit times, and logistics complications stemming from anti-COVID precautions and safety measures.
Steps to Take Now
To safeguard your business, you may want to consider the following proactive measures:
Prepare for volume spikes to slow down both international and domestic logistics — proactively stock up on inventory, if possible.
Communicate with your suppliers about shipping dates, blackout dates, and any other changes to your normal arrangements.
Take a close look at the viability of your shipping methods. Ensure that you have a reliable service to get products to your customers as close to on-time as possible.
Consider working with a third-party order fulfillment provider like IronLinx to add an increased layer of stability to your business during this difficult time.