Why China’s economy faces a dangerous road to recovery

Many European manufacturers in China have been forced to work with about half their usual staff for two to three weeks, which has hampered production somewhat, said Klaus Zenkel, the chair of the chamber’s South China chapter. As a precaution against lockdowns, before the Covid outbreak, many companies had been piling spare parts in warehouses and relying on them to keep running.

But to cut costs, some small suppliers of certain components have suspended operations early for the Lunar New Year holiday, which begins Jan. 21, Zenkel said.

The damage ‘zero Covid’ has done to China’s once unbeatable manufacturing appeal could be difficult to undo.

Lockdowns and closed borders slowed or disrupted shipments of goods and prevented many businesses from sending buyers to factories. Some global retailers, seeing the risk of over-reliance on China, have turned to other countries for supplies instead. Walmart for example wants to stock up Imports from India to $10 billion per year by 2027.

Chinese exporters are also trying to diversify.

In Yangjiang, Velon Enterprises, a Chinese maker of knives, grill thermometers and other kitchenware for Walmart, Ikea, Target, Carrefour and other retailers, is expanding its operations in Cambodia, Vietnam and India. The company has shrunk its Yangjiang workforce from 1,700 to 1,200 through attrition and is considering potential factory locations from Mexico to Turkey, said Jacob Rothman, co-founder and co-CEO.

Companies like Velong are finding some savings as they venture out. The company pays workers in Cambodia half what it pays workers in Yangjiang.