Why China’s supply chains are collapsing

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welcome to Foreign police‘s China Brief.

Highlights of the week: A storm of problems in China causes global supply chain disruptions, President Xi Jinping is unlikely to attend the COP26 Climate Conference in Glasgow, and the government introduced another round of COVID-19 restrictions due to delta variant cases.

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Supply chain disruptions aren’t going anywhere soon

Global supply chains are congested amid booming consumer demand – and should remain so during the holidays – and there are many bottlenecks in China. Small businesses have reported lead delays of up to nine months on orders from China, while larger companies are struggling to keep shelves stocked in the United States.

One of the reasons for the slowdown is the surprising resilience of US consumption and Chinese production after the onset of the coronavirus pandemic. The ensuing US recession was relatively short, and the wealthiest Americans are now spending heavily. China’s manufacturing sector has also recovered faster than expected from its crisis period early last year. But shipping companies had already cut their schedules, causing disruption that continues to trickle down to the overloaded global system.

A shortage of shipping containers, which are essential to modern supply chains, contributes to the disruption. Containers normally circulate around the world, but many are now blocked in North America: for every 100 containers that arrive there, only 40 are sent back to Asia or Europe. Surplus containers are piling up in Los Angeles and other US ports as Chinese suppliers fight for them. It will be months before container manufacturers in China step up to meet demand.

Another factor is China’s fear of reintroducing the coronavirus. COVID-19 rules, such as the recent closures in Vietnam, have disrupted shipping around the world. But the problem is particularly acute in China, where most overseas travel remains banned, including many overseas trips. (Chinese authorities have been relatively flexible in accepting valid reasons for the travel.) Ports are particularly sensitive places, with regular closures for mass testing in the case of infected personnel.

In August, the port of Ningbo, the third in the world, was closed for a single case of COVID-19, after the closure of the port of Yantian, the fourth in the world, in May and June due to 150 cases. The Chinese restrictions are part of the larger crew change crisis that has left the crews of stranded ships around the world, with at least 1,000 merchant seamen entirely abandoned, thanks to a poorly regulated and exploitative industry.

Moreover, the Chinese industry struggled in 2021, despite its surprisingly strong recovery last year. Recent power shortages are part of the problem, but growing labor shortages may present a more permanent problem. COVID-19-related restrictions have made travel more difficult for many migrant workers who once moved regularly in search of work, especially those without proper identification. But China is also facing a demographic crisis, as its working-age population continues to decline after its peak in 2011.

In the long run, the demographic challenge is likely to push supply chain diversification away from China, both for economic reasons and because it will give more weight to existing concerns about security and political vulnerabilities. . In the short term, don’t bet on getting what you want for the holidays.


No Xi in Glasgow. As the United Nations Climate Change Conference (COP26) in Glasgow, Scotland approaches, it seems highly unlikely that Chinese President Xi Jinping will be there. This does not mean Beijing does not take the conference seriously – Xi has not left the country since the start of the pandemic, either for fear of infection or for fear that his absence would present an opportunity for his rivals at home. A video appearance of Xi, alongside other claims of support for the COP26 agenda, is likely.

However, ongoing power shortages have complicated China’s existing climate plans. It has yet to submit its emissions reduction targets, potentially hampered by increases in coal production and consumption forced over the past two weeks to deal with the energy crisis.

China is the world’s largest carbon emitter, largely due to the activities of state-owned industries. Despite the lingering illusions of US climate negotiators, Beijing’s climate policy is unlikely to be affected by what Washington is doing. The determinants are rather domestic: the political weight of public enterprises and the need to balance the needs of a developing economy against the desire not to see the coast sink – within the constraints of a system often just as incapable of thought to term like the United States.

Delta variant surges strengthen COVID-19 rules. An outbreak of delta variant cases in China, mostly linked to travel during the holidays earlier this month, sparked another round of travel regulations. The numbers – just 160 cases in this outbreak – would be insignificant in many other countries. But China is still doing its best to stick to its “zero COVID” strategy amid fears the delta variant could undermine its domestically produced vaccines; this latest outbreak means lockdowns, mass testing and even more restrictions to protect Beijing’s rulers.

Hong Kong has also adopted increasingly stringent measures, despite a very low number of cases. Even for long-term residents, returning to Hong Kong from overseas is extremely difficult, not only because of the required quarantine period, but also because flights are frequently canceled. This is yet another factor pushing businesses out of the besieged city.

Chinese youth are looking for official jobs. A record 2 million candidates registered for Chinese civil service exams next month, the first step in a conventional career as a government official. (There are other routes for well-connected people.) This is an increase from 1.5 million applicants last year, which was already a record, illustrating the growing tendency of young Chinese people to seek jobs. official rather than private sector jobs.

Under Xi, China followed a cohesive model of “state progress, private sector retreat” – a slogan originally coined to describe the progress of state-owned enterprises that is now ideologically pushed from the top. It is not surprising that a cynical generation of young people seek the comfort and stability of government positions. It also suggests that despite a decade of anti-corruption campaigns, the formal and informal benefits of government jobs remain substantial.


The United States expels China Telecom. In a long-awaited decision, the United States Federal Communications Commission (FCC) unanimously agreed to revoke the license to operate state-owned company China Telecom in the United States, citing risks to Security. The Biden administration hasn’t shown the same level of enthusiasm as its predecessor to picking new Chinese tech targets, but it hasn’t backed down either.

As the FCC vote and other reports show, anti-Chinese Communist Party (CCP) action remains one of the very few areas of strong bipartisan agreement in Washington.

Property tax pilots. China is planning limited pilot property tax programs over the next five years, but that doesn’t seem like a sign of strength from the government when it comes to bursting the housing bubble. Instead, it’s a weak, diffuse movement that pushes the box back once again. China has conducted land tax pilot projects for more than a decade. To repeat the process rather than using the previous programs as models to introduce a national tax is disappointing, especially in the face of a growing real estate crisis.

But China’s upper middle classes, the backbone of the CCP’s support, are deeply into real estate investments – and anything that threatens their prosperity also threatens the party.

Alibaba down $ 344 billion. The Chinese government’s regulatory war against online giant Alibaba began around the same time last year after its charismatic founder, Jack Ma, criticized regulators. Since then, Ma has virtually disappeared from public life, Alibaba’s financial arm has seen its IPO stalled, and the tech industry has become the target of an ideological and regulatory frenzy. Shareholder value fell to $ 344 billion.

The Alibaba affair reminds us that Beijing can wipe out at will almost any company based in China, or which has substantial transactions in China. Recent arguments by a few Western investors that the storm has passed and will not affect other sectors are wrong.



People walk with umbrellas in bad weather in Ningbo, China on July 25.HECTOR RETAMAL / AFP via Getty Images

Ningbo, Zhejiang: 4.4 million inhabitants in the metropolitan area

You can’t escape the smell of Ningbo. Near the coast, it’s the scent of the sea, and elsewhere it’s the city’s famous affinity for stinky food. Ningbo’s cuisine is built around preserving and fermenting in brine and a consequent pride in pungent smells, especially the so-called three stinks of wax squash, amaranth stems, and taro. The tradition is old: Ningbo’s first settlers were fishermen and beach fishermen who left mounds of seashells behind 8,000 years ago.

Ningbo has been an international port for over 1,000 years, home to a small but significant Arab and Persian trading community and welcoming visitors from all over South and Southeast Asia. The Portuguese reached the city in 1522; like others, they alternated between trade and raids. Wealthy families, wealthy from the profits of trade, clustered around the city’s Moon Lake, a man-made reservoir that still survives as a tourist attraction.

Today, Ningbo is the second largest port in China and the third largest in the world. The port district and its warehouses stretch for miles, including one of the longest sea bridges in the world, which connects the city to Shanghai. Like other ports, land reclamation is a big problem in Ningbo. The same goes for the effort to preserve the city’s wetland ecosystem that made its unique cuisine possible.


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