Why China’s economy faces a perilous road to recovery

Many European manufacturers in China have been forced to operate with around half their usual staff for two to three weeks, which has affected production somewhat, said Klaus Zenkel, president of the chamber’s South China section. As a precaution against blockages, many businesses had stockpiled spare parts in warehouses before the Covid wave and relied on these to keep operating.

But to save costs, a few small suppliers of specific components stopped operations early for the Lunar New Year holiday, which begins on Jan. 21. , says Zenkel.

The damage that “zero Covid” has inflicted on China’s once unbeatable attractiveness as a manufacturing hub may be hard to undo.

Lockdowns and closed borders have slowed or disrupted shipments of goods and prevented many companies from sending buyers to factories. Some global retailers, seeing the risk of overreliance on China, have instead looked to other countries for sourcing. Walmart, for example, plans to increase imports from India to $10 billion a year by 2027.

Even Chinese exporters are trying to diversify.

In Yangjiang, Velong Enterprises, a Chinese manufacturer of knives, grill thermometers and other kitchen tools for Walmart, Ikea, Target, Carrefour and other retailers, is expanding its operations into Cambodia, Vietnam and India. It has reduced its workforce in Yangjiang from 1,700 to 1,200 through attrition and is considering potential factory sites from Mexico to Turkey, said Jacob Rothman, co-founder and co-chief executive.

Companies like Velong save money when they venture out. The company pays workers in Cambodia half as much as its workers in Yangjiang.