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China’s COVID surge poses ‘uncertainties’ for global supply chain

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As supply chain woes continue to add to the rising cost of living, concern over how China’s zero-COVID policy may further add to it is on the rise, especially the impact it might have on Canada.

Beijing’s tough COVID-19 rules and factory shutdowns can wreak havoc on supply chains that Canada relies on. Now, with China easing its zero-COVID policy, the virus has surged, creating an environment for new variants to thrive and uncertainty for the global economy, including Canada, according to some experts.

Ari Van Assche, a professor at the department of International Business from HEC Montreal, thinks that China’s move to drop COVID rules has created a lot of uncertainty that could definitely “put a big drag” on the world economy.

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“It’s very difficult to understand what is happening in China because data on supply chain issues or on the spread of COVID in China is not very reliable,” Van Assche told Global News.

On Jan. 4, World Health Organization (WHO) expressed concerns about the lack of outbreak data from China, accusing China of not giving an accurate picture of the situation there and underrepresenting the number of hospitalizations and deaths from the virus.

The question of whether or not the zero-COVID policy would influence supply chains “depends very much” on where China wants to go, said Van Assche.

“If China is able to move on and ensure that we’re going back to normal, despite the (lack of) clarity that we have right now … then 2023 might be a fantastic year of breaking out of collapse,” said Van Assche.

“But if it leads to significant disruptions in an economy that already is trying to catch its breath to get to normal, it’s not really clear what’s in store for 2023, or what 2024 will look like.”

Supply chains have gone haywire ever since the World Health Organization declared COVID-19 to be a pandemic in March 2020. Shipping containers were diverted to medical supplies or held unused in far-flung ports. And in the resulting chaos, Canadians saw compound effects: a semiconductor shortage, a dearth of rental cars, a rise in lumber prices.

The trend somewhat balanced through most of 2022, with global supply chain pressures increasing moderately in November, continuing a drift seen in October, albeit at a lower rate.

Delayed shipments from China was the largest factor contributing to the rise in supply chain pressures last year, according to a Global Supply Chain Pressure Index report.

China’s National Bureau of Statistics stated on Dec. 31, 2022, that factory activity had shrunk for three months leading to December as the country dropped its zero-COVID policy.

According to Werner Antweiler, an associate professor at the University of British Columbia Sauder School of Business, China’s factory model has made the country and its workers vulnerable to COVID-19 outbreaks.

“In general, China’s concentration of manufacturing in a number of ‘campuses’ in places like Shenzhen, such as Foxconn’s Longhua Science and Technology Park, makes it vulnerable to significant new COVID outbreaks,” Antweiler told Global News in an email.

The outbreaks could “have an outsized effect with respect to disrupting global supply chains,” said Antweiler. “It is possible that China may need to revert to localized lockdowns in the absence of good alternatives.”

 

Is Canada prepared to deal with supply chain snarls?

Van Assche says he believes there will be some supply chain disruptions, but it will not be on the same scale as Canada has seen in the past, as companies are slowly adapting to the new reality.

“It will likely have an impact on a lot of companies individually, but it won’t be of the same level that we’ve seen during the perfect storm of supply chain disruptions during the pandemic,” said Van Assche. He noted that the demand for goods coming from China has also eased up with Canadian consumers opting to buy less Chinese goods.

“The severe stress on the global shipping industry has been going down, so is not as difficult as it was in the past for companies to find space on containers now,” said Van Assche.

Van Assche says the Canadian government needs to identify what goods are essential to the public and come up with strategies to build a secure supply chain.


Click to play video: 'Canadian transport minister announces steps to ease export'
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Canadian transport minister announces steps to ease export

 


In an email to Global News, a spokesperson for Innovation, Science, and Economic Development Canada said that the government is monitoring signs of strain in critical supply chains and infrastructure to “ensure the timely movement of goods and materials as the economy recovers.”

It said that past experiences have “demonstrated the urgency and necessity to diversify our supply and trade bases, embrace digital technologies, move away from linear supply chain networks, and build domestic manufacturing capacity in critical inputs and products.”

There can be various causes behind supply chain disruptions, and factors impacting shortages are often exclusive to a commodity or industrial sector, the innovation agency noted.

“Common elements affecting multiple supply chain disruptions, however, are the same for Canada as with other nations around the world – enormous shifts in demand, transportation issues and container shortages, and exacerbated shortages in skilled labour.”

“To enhance supply chain security in specific commodities such as critical minerals, batteries and semiconductors as well as other inputs that are important to support critical sectors like life sciences, manufacturing, transportation, and defence,” the Canadian government is working closely with international partners, they said.

Transport Canada also said they have been working closely with manufacturing industries and other supply chain partners to ease congestion. They implemented the Supply Chain Task Force in 2022 and continue to support investments in transportation infrastructure projects.

In an email to Global News, the agency said that the government “continues to engage with industry and other supply chain partners on any impacts to the fluidity and reliability of the system.”

Further, the National Trade Corridors Fund (NTCF) is helping ease “bottlenecks and congestion in Canada’s transportation system,” they added, while also “enhancing trade hubs and gateways so it is easier for Canadian businesses to get their goods to consumers around the world.”

“The Government of Canada remains committed to bringing forward a National Supply Chain Strategy, with further details to be announced in Budget 2023,” they said.

— With files from Reuters

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