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China’s New COVID Meltdown Will Hurt Global Manufacturing

China's COVID outbreak means bad things for the market

In 2019, Wuhan, China was the first place to experience the wrath of COVID. From there, the virus spread to cause a global pandemic that brought the world to its knees. Every country affected soon implemented lockdowns, quarantines and mass testing in an effort to slow the spread. And China was perhaps among the most effective in implementing these policies and halting the rampant contagion. But while China’s COVID outbreak was fairly well contained then, things have since changed. In fact, China’s new COVID threats today could again have global impacts beyond the spread of a virus.

Two hands representing China and the US shaking
China’s new COVID threats will mean a host of problems for global supply chains and manufacturing.

In recent weeks, China suddenly relaxed its strict “zero-COVID” policies in response to growing protests and social unrest. It would seem, however, that the abrupt shift has positioned the country in a precarious situation. Low vaccination rates and the lack of herd immunity are resulting in massive numbers of Chinese becoming infected with COVID. As a result, healthcare systems and hospitals have become overwhelmed. Similarly, thousands are unable to show up for work. This has serious potential repercussions in terms of the emergence of new COVID variants. And once again, China’s new COVID threats are threatening global supply chains.

 

“The hospital was operating on the brink. About 80 to 90 percent of the people around me have been infected.” – Dr. Judy Pu, Physician in a Chinese Medical Ward

China’s COVID Outbreak

The current situation in China is not a good one when it comes to China’s new COVID threats. On December 7th, all mass testing requirements, quarantines, and other restrictions related to the virus vanished. In response to an increasing number of protests, the Chinese government made a sudden about-face from its longstanding policies. And while many welcomed the relaxed guidelines, the repercussions of this shift have already been profound. Hundreds of thousands of people have since contracted COVID, placing tremendous pressures on China’s healthcare system. Patients already line every hallway within China’s hospitals waiting for triage and care. And many succumb to their illness due to lack of oxygen, ventilators and critical care beds.

A sign showing the implications of China's COVID outbreak
What’s does China’s COVID outbreak mean for the world? Well, for those who’ve diversified their manufacturing, not much…

For the past three years, China’s zero-COVID policies were effective in keeping the virus in check. But instead of stockpiling vaccines and treatments or encouraging vaccinations, the state did little to prepare. Combined with the sudden shift in policy, these missteps have placed healthcare systems in dire straits. Every hospital is currently struggling to keep pace, and staffing shortages are tremendous. Likewise, vaccination rates are incredibly low among the elderly, and domestically produced vaccines are less effective than others. The U.S. has even offered to supply China with mRNA vaccines against COVID, but China has refused the offer. All of these factors are contributing to China’s new COVID threats and leading to China’s COVID outbreak currently.

(Dig into the history of mRNA vaccine development in this Bold story.)

“The Covid outbreak has severely impacted our production. Twenty to 30% of our employees are sick at home.” – Lian Yubo, Vice President of BYD

Workforce and Labor Impacts

While the elderly and vulnerable populations are notably at risk in relation to China’s new COVID threats, so are others. Healthcare workers in particular are susceptible to infection, and many are working through their illness. With no further quarantine or testing requirements, patient demand is persuading some to persevere. But this has obvious negative effects not only among patients but among the entire healthcare system workforce. Many emergency rooms and wards are operating with under 50% staffing numbers. Even medical students and residents, the lowest paid healthcare workers, are being asked to pick up the slack. This has resulted in medical student protests that have recently accelerated in the wake of a student’s COVID-related death.

Some workers laying cable somewhere
Global manufacturing will definitely be impacted by China’s COVID outbreak. Will more nations diversify as a result?

The negative effect of China’s COVID outbreak is also affecting other labor areas. Specifically, manufacturing and supply chain workforce absences are already being felt once again. During the first year of the pandemic, the global impact of China’s restrictions crippled these sectors. As a result, freight shipping expenses climbed and marked delays in the delivery of goods resulted. Despite improvements, these effects never completely resolved as China continued to impose highly restrictive COVID policies. This has led to some companies exploring alternative locations like Vietnam, Indonesia and India. But now, China’s new COVID threats are making matters even worse. As a result of workforce absenteeism from China’s COVID outbreak, experts expect manufacturing and supply chains to again suffer substantially.

(What does the future hold for Vietnam’s role in the manufacturing world? Read this Bold story and find out.)

“What we’re concerned about is a new variant that may emerge actually in China. With so many people in China being affected in a short period of time there is a chance, a probability that a new variant may emerge.” – Anonymous CDC Official

COVID-Related Threats Beyond Labor

In addition to labor impacts and healthcare strains, China’s new COVID threats are notable for another reason. Major concerns exist among other countries about emerging new COVID variants given the size of China’s COVID outbreak. Given these numbers, the potential for new variants beyond the current Omicron version to develop are significant. And such variants could pose problems well beyond China’s new COVID threats. Unfortunately, China is being far from transparent when it comes to reporting. China has reported genetic profiles in less than 1% of its recent COVID cases, a total of 412 cases. In contrast, the U.S. has reported such profiles in nearly 600,000 cases during the same time period.

Notably, a new more potent COVID variant could spell trouble for every country in the world. This too would negatively affect production and supply chain function. But even if such variants don’t emerge, it’s clear China’s new COVID threats are going to undermine global manufacturing efforts. Staff shortages, absenteeism, and higher mortality rates will all contribute to this problem. Prior Chinese policies were too strict, resulting in persistent supply chain problems. Now, policies have aggravated this problem even further while triggering China’s COVID outbreak. Given this, it is evident that global manufacturing will continue to suffer for the foreseeable future. And as such, proactive steps toward supply chain security should be pursued.

 

Sometimes businesses are like rose bushes, and need to be pruned to grow. Read more about prune and grow, and Musk’s use of it, in this Bold story.

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