China reminds that global shock and ore may hurt tech supply chain

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The warning follows an order from the local government in Shenzhen on Monday that all but the most important factories in the tech hub halt production for a week. Following the announcement of the new restrictions, more than 70 Taiwanese companies operating in the city and dozens of local Chinese manufacturers said they had suspended production.

“2022 is a very challenging year,” Liu Young-way, chairman of Foxconn, said on a conference call for investors, adding that the continued spread of the coronavirus brings “very great uncertainty.” 

“China is digging itself a deep hole with its zero-covid policy,” said Olaf Schatteman, a supply chain expert at consulting firm Bain. “As the restrictions hurt suppliers and logistics, companies are moving beyond containing the current crisis toward diversifying manufacturing locations, which undermines China as a supply chain hub globally.”

Analysts said the impact on Apple would remain limited because the main iPhone production facility at Foxconn, the company’s largest supplier, is in Zhengzhou, a central Chinese city that was not affected at the time. “We think this is a manageable problem, especially if it is limited to one week,” he said. The challenges could be further supply chain issues for the tech ecosystem and further pressure on supply/logistics overall,” Evercore ISI said in a research note.

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