One of the world’s largest centers of electronics manufacturing is grinding to a halt near Shanghai, adding to China’s economic woes and deepening disruption to global supply chains.
Dozens of makers of key electronic components halted production at their factories in Kunshan, a city near Shanghai, on Wednesday. Businesses and analysts said the closure was inevitable after lockdown rules originally only applicable to Shanghai were extended to Kunshan.
“The situation in Kunshan changed overnight. While the factories there used to be able to operate under so-called “static management”, they are now switching to a system like in Shanghai, in which individual areas are classified as closed, restricted or protected depending on when they last registered infections said Patrick Chen, head of research at CLSA, a brokerage firm, in Taipei.
The production interruptions have increased risks for China’s slowing economy. On Monday, Premier Li Keqiang warned for the third time in a week of the dangers that anti-pandemic measures pose to the economy.
Official data showed new cases hit a record high in Shanghai on Tuesday, after falling a day earlier. There have been 26,330 positive cases in the city under a major lockdown to halt China’s worst outbreak of the virus in two years.
The authorities laid out a blueprint for relax some measures by the reopening of housing complexes with no cases in the last two weeks. However, lockdown restrictions remain in place in much of China’s largest city, where residents have complained of difficulties ordering groceries online. The US Department of State This week, non-essential consular personnel ordered Shanghai to leave.
The lockdown has also hit trucking companies, prompting warnings of a deeper impact on global trade. However, the port of Shanghai has remained operational through a so-called closed systemwhere workers stay on site.
Economists from Nomura estimated that 45 cities and 373 million people in China were under full or partial lockdown, compared with 23 cities and 193 million people a week ago.
In March, imports to China fell for the first time since August 2020 in dollar terms, a sign of growing pressure on trade. Exports increased by 15 percent.
Due to production delays in the electronics industry, this is just the latest industry to be impacted by the restrictions. Electric car manufacturer Nio said over the weekend that suppliers in Shanghai and elsewhere had halted production and would stop deliveries.
On Wednesday, more than 30 Taiwanese electronics manufacturers announced the closure of factories near Shanghai.
WUS, a leading printed circuit board maker, said two of its Kunshan-based subsidiaries have halted production. LCD backlight maker Coretronic announced a week-long halt to production at its Kunshan plant, while Wise Pioneer, a supplier of machinery used to make electronic products such as flat panels and lenses, said it would extend the shutdown by another week.
Contract electronics manufacturer Pegatron, which assembles some iPhone models for Apple, halted production at two plants in Shanghai and Kunshan on Tuesday.
Analysts said the disruptions risked worsening component shortages.
“Even if some companies are allowed to continue producing, their capacity utilization has dropped to 40 to 60 percent. Raw materials cannot be stored and finished products cannot be outsourced,” said Chen.
Analysts expected shipments of printed circuit boards, a component used in almost every electronic device, and housings for smartphones and laptops to be hit hardest by the plant closures.
The impact on Apple is likely to be limited as demand for the iPhone models Pegatron assembles, the 13 mini and the SE3, has been sluggish and production for the iPhone 14 is not expected to pick up until late in the third quarter.
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