China, which has shut down entire cities as COVID-19 spreads, is working to keep factories running by isolating workers from the rest of society.
China is experiencing its worst outbreak of the coronavirus since the start of the pandemic, and tens of millions of its residents are under strict lockdown orders. The spreading contagion is fueling concerns that global supply chains will be further disrupted, but some factories are humming along once again through the use of closed-loop management.
Foxconn, a major manufacturer of Apple’s iPhone, was given permission by the Chinese government to resume production in the city of Shenzhen on Wednesday after it agreed to isolate its workers and closely monitor their health, according to Bloomberg.
Shenzhen, known as the Silicon Valley of China, had its 17.5 million residents placed under stringent lockdown orders over the weekend.
COVID-19 OUTBREAK IN CHINA THREATENS TO MAKE INFLATION EVEN WORSE
China has a zero-COVID-19 policy, which entails the imposition of strict mitigation measures that include isolating individual cases — a sharp contrast to Western countries that have leaned upon mass vaccination and masking.
In order to return to work, Chinese employees who work at Foxconn in Shenzhen are living in company-run dormitories and are being driven to and from the factory without contact with outside residents. The workers also must undergo COVID-19 testing procedures, meaning they are now living in a sort of bubble from the outside world.
The strategy of closed-loop management is also being deployed for workers in Dongguan, another major manufacturing hub.
TCL, Semiconductor Manufacturing International, and Shenzhen Deren Electronic have also reportedly been able to keep their factories running using the bubblelike isolation system, while electric vehicle giant Tesla is planning similar procedures for its factory in Shanghai, according to Reuters.
Investors were spooked by the rise in COVID-19 cases across China, given its strict mitigation policies. Specifically, they have worried that lockdowns could shut down production in China and further distort global supply chains.
After the outbreaks grew over the weekend, the Hang Seng China Enterprises Index closed down 7.2% on Monday, the biggest tumble since the global financial crisis in 2008. The tech-heavy Hang Seng Tech Index cratered even more, down 11%.
If producers are forced to cut back production in a major way at factories across China, the result would be fewer goods arriving in the United States, and the resulting scarcity, coupled with U.S. demand, could further fuel inflation, which has been plaguing the country for the past year.
Paul Donovan, UBS’s global chief economist, said that because some factories in China are being allowed to operate under the closed-loop model, the economic fallout from the outbreaks will be “significantly less.”
“The problem is that people hear ‘lockdown’ and instinctively think of what happened in 2020,” Donovan said. “That is not what is happening now.”
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The U.S. economy is still working its way out of the effects of the pandemic. Since peaking at 14.7%, the unemployment rate has declined to 3.8%, although the economy is still millions of jobs short of where it was in early 2020.
While the jobs situation has been improving, inflation has been accelerating. Consumer prices increased by a whopping 7.9% for the 12 months ending in February, the fastest clip since 1982. The Federal Reserve announced this week that it would raise its interest rate target by a quarter percentage point in an effort to curb soaring inflation, the first such move in years.
