Chinese manufacturing hub locked down

If you’re planning to buy an iPad any time soon, you may want to act fast. The Chinese manufacturing hub of Chengdu (where most of Apple’s tablets are made) is locking down to contain a COVID outbreak, threatening to disrupt supply chains around the world. 

Why it matters: Global companies like Apple, VW, Toyota, and Bosch depend heavily on factories in Chengdu to manufacture their products, and will now have to contend with strict public health measures to keep those supply chains working. 

  • In a bid to keep operating, companies are setting up “factory bubbles” in which workers have to remain on-site at all times and avoid outside contact, but these closed loop systems haven’t successfully kept plants producing at full capacity in the past.
  • Other large cities haven’t been fully locked down yet, but neighbourhoods in Shenzhen have begun ramping up restrictions as COVID cases rise, raising fears that the city could also soon face a full lockdown.

Zoom out: China’s economy has been pummelled by COVID-zero policies, months of record-breaking heat waves, and a slowly-unfolding housing market crisis.

  • What some have called “the worst heatwave ever recorded in global history” has crippled China’s rice harvest and dried up rivers, reducing the availability of hydropower and leading to rolling blackouts.
  • Meanwhile, government restrictions on housing development and mortgages, intended to gently deflate China’s property bubble, have crushed the housing market and led to bank defaults and mortgage boycotts.

Yes, but: While this is bad news for Chinese consumers (and anyone who sells stuff to them), China’s “lower demand for imported metals, energy, food and capital goods is alleviating inflationary pressures in the rest of the world,” Matt Klein writes in FT