For decades, the world has depended on China as a massive factory floor and market. As the country’s economic growth crumbles, the pain is spreading globally. Lockdowns aimed at stamping out Covid-19 are throttling activity in the world’s second-largest economy. Overseas demand for China’s exports is fading as economies wrestle with surging prices and rising interest rates.
The effects of China’s slowdown are showing up everywhere from German factories to Australian tourist spots. Car sales in China have collapsed, hitting auto makers including BMW, VW, and Tesla. Tesla sold just 1,512 cars made at its Shanghai plant in April, down 98% from the more than 65,000 it sold in March.
Foxconn, the world’s biggest iPhone assembler, faces logistics disruptions and other challenges in China stemming from the country’s stringent Covid measures, reports The Wall Street Journal (May 13, 2022). Most of Foxconn’s factories in China have been running under a bubble-like system. The manufacturer has relied on its supply-chain management expertise to keep production going even during Covid outbreaks.
Apple, Foxconn’s biggest customer, said that the Covid outbreaks in China threaten to hinder this quarter’s sales by as much as $8 billion. Apple’s supply constraints mainly stemmed from Shanghai, much of which has been under a lockdown for more than a month, and the nearby regions, where logistics have been disrupted.
Foxconn has been following a closed-loop system to keep tens of thousands of workers in or around the factory, a system that has become the standard among manufacturers in China to continue manufacturing during Covid outbreaks.
In March, Foxconn had to suspend operations at its factories in Shenzhen, another site where it produces Apple products, after a virus outbreak there. Hit harder than Foxconn is rival Pegatron, the second-largest assembler of iPhones, which suspended production at its factories in Shanghai and nearby Jiangsu province last month.
Others in the electronics sector also face fallout from China’s anti-Covid policies. Sony faces delays in procuring parts from Shanghai and nearby areas. Panasonic warned that the impact from the lockdowns in China would start to manifest in its performance over the coming months.
Classroom discussion questions:
- What are the advantages and disadvantages of Foxconn’s “closed loop” system?
- What can Apple and other manufacturers do to mitigate the shutdown damages?