China's factories lose momentum amid tsunami of Covid cases as curbs ease

From locking in workers to hoarding medicines, beds and disinfectant, China’s factories are going to great lengths to keep the machines running — and the global supply chain intact — as an onslaught of Covid cases looms.
 

The world’s second-biggest economy is rapidly dismantling restrictions that largely kept the virus at bay for almost three years. The resulting eruption in infections is set to be a key test for a vast network of factories that account for almost one-third of the world’s manufacturing output. Those plants are now taking extraordinary steps to ward off infections. 

Sinopec, for example, likens the task ahead to fighting a war. The Chinese oil refining giant has gone over plans to hold output steady with some staff more than 30 times, isolating certain employees from the rest of the workforce and scrapping leave. Electric vehicle maker Nio Inc. has secured several truckloads of medical supplies and equipment for staff as part of a plan to keep its lines humming. 

Outbreaks have the potential to cripple production or tear through employee rosters, threatening the global supply of everything from cars and golf carts to kitchen appliances and, of course, iPhones.

The same battle to ward off Covid was fought what now seems like an eon ago in facilities across the US and Europe. Those efforts provide a cautionary tale for China on the difficulty of keeping out the virus from factories completely.

“The experience in the rest of the world is that you cannot stop it,” said Maximilian Butek, head of the German Chamber of Commerce in Shanghai. “Companies risk getting all employees infected and having no one in the factory.” Across China, the chamber’s directors include executives from Volkswagen AG, drugmaker Bayer AG and Siemens AG. 

Rapid Reversal
 

After years of testing and tracking its citizens for the coronavirus, China abruptly abandoned that approach this month with the end of Covid Zero. The rapid reopening could result in some 5 million people hospitalized and as many as 700,000 deaths, according to Sam Fazeli, Bloomberg Intelligence’s chief pharmaceutical analyst.

Already, infections are coursing through China’s financial industry, seeing traders at city firms call in sick. Factories, mostly located in manufacturing belts or secondary metropolitan hubs, are next in line.

Details of contingency plans provided by a range of companies with plants in China paint a varied picture of preparedness for an almost inevitable surge in cases.

Closed Loops Are Back
 

Many Chinese manufacturers are turning to so-called closed-loop systems, a model first deployed during the Beijing Winter Olympics this year to isolate athletes from the wider population and reduce the chance of infections. They were then used during the Shanghai lockdown by companies such as Tesla Inc. to keep employees Covid-free and maintain production. 

But it’s not clear whether that approach — which saw violent pushback from workers at the world’s biggest iPhone factory last month — will be enough this time round, once cases start to snowball.

Zhejiang Geely Holding Group Co., the carmaker better known as Geely, is keeping workers at its factories in China on site and sleeping in dormitories. But the company, which has more than 30 sites across China, doesn’t plan to suspend production if there are infections.

Covid has already ripped through a workshop at BMW AG’s Shenyang factory, infecting most of a production line, according to a person with knowledge of the situation. A new group of employees was called in to replace the sickened staff this month, the person said, requesting anonymity because they aren’t authorized to speak publicly. 

BMW said in a statement that it’s “closely monitoring the infectious situation and adjusting the production and shift plans to ensure normal production. Many effective measures have been implemented, such as flexible shift patterns.”

China’s sudden transition from a nation determined to eliminate Covid to one that’s resigned to live with it poses particular challenges for manufacturers. They, of all companies, need a certain volume of working staff to meet delivery targets. Unlike banks and trading houses, where employees can just as easily work from home, products can’t be assembled without people on site.

Manufacturers in North America showed early in the pandemic how the virus can lead to production chaos at first, and then supply chain disruption later. Infections at US car factories forced closures in the first few months of the crisis. Then a global chip shortage, triggered by the pandemic, led to yet more output cuts. 

Already, this year’s prolonged lockdown in Shanghai did so much damage to manufacturing that it led to a global shortage of the critical contrast agent used in medical scans.

Now, companies on the front line as China reopens are hoping to learn from how other businesses protected themselves and handled infections.

“It’s still hard to predict the exact number of infected cases,” Qin Lihong, co-founder and president of automaker Nio, told reporters this week. “We are looking forward to having some other companies as good examples.” 

Volkswagen, Solar Companies
 

Volkswagen said in a statement that while its production network in China is currently stable, it’s taking cues from other units and regions within the group on how best to handle a surge in cases. It cited the practice of categorizing workplaces as direct or indirect, as well as applying a far-reaching hygiene policy.

But the new reality for many employees at Chinese companies is a brutal schedule that requires them to work, eat and even sleep in small groups  — all for the sake of production continuity.

Jinneng Holding Group, a miner in Shanxi province, is asking staff to avoid colleagues in different divisions, and canteens have been replaced with food deliveries to working areas. The company’s solar unit has installed beds in offices for staff who can’t return home.

Longi Green Energy Technology Co., the world’s largest solar equipment manufacturer, has most of its front-line workers living in dormitories, the company said last week. Close to 1,000 staff at Sinopec’s Yanshan oil refinery in Beijing are also living where they work in order to keep operations stable, according to a statement from the company.

In some cases, China’s years-long, relentless effort to stamp out the virus, and the induced fear of getting infected, has made it harder for companies to get workers back.

Kinghike Vehicle Co., an electric golf-cart maker in Shandong province in eastern China, is trying to convince staff that becoming infected may not be as bad as they think, and reinforcing that they can stay at home if they test positive.

“Our human resources department is preparing employees mentally so they know that catching the virus is not that horrible,” said General Manager Hermann Zhai. China, he said, should have reopened “a long time ago.”

--With assistance from Chunying Zhang, Debby Wu, Gao Yuan, Sarah Chen, Ann Koh, Yujing Liu, Kathy Chen, Luz Ding, Daniela Wei, Danny Lee and Fran Wang.