Opinion

We’re heading closer the 2023 Chinese New Year (CNY) holiday, when factories shut down and tens of millions of workers who reside in factory dorms travel the country to be with their families.

While the official CNY date is January 22, 2023, many factories will start closing two weeks prior and will not resume production until early February, when workers return for work.

Typically, this is a well-choreographed flow of people moving around China. However, 2023 may prove to be anything but typical.

2020 hindsight

Looking back to the recent past could provide some insights into what could happen in early 2023.

When COVID-19 first hit China in early 2020, workers were delayed in returning to factories after the Chinese New Year. Stringent lockdown measures were also implemented by the government.

As a result, goods made in China for export became severely delayed, if not scarce, and prices for many products surged.

Once factories started catching up, cargo ships did not have enough space to handle the surge in exports, and the cost of shipping a container to the U.S. soared.

Of course, that was nearly three years ago, and things are better now. Chinese manufacturers have excess capacity and are looking for orders as U.S. retailers and importers grapple with excess inventories stateside. Space is readily available on container vessels and rates have dropped. So why should we be concerned?

Change to China’s zero-COVID policy taking effect

Today, China is retreating from its stringent zero-COVID policy, which called for lockdowns at the first sign of cases. While this may have cut down on hospitalizations and deaths, the policy has hurt the Chinese economy and is causing frustration among Chinese citizens.

Medical experts warn that as the country reopens, infection risks are high: Chinese vaccines are said to not be as effective, and, because of the lockdowns and low infection rates, there is very little herd immunity.

This means that Covid cases, hospitalizations, and deaths could explode in a country with a population of 1.4 billion people.

How this could play out

In less than a month, tens of millions of Chinese factory workers will start traveling home, and families will be coming together – just as cases are Covid are starting to take off.

Even if lockdowns are not mandated by the government, illnesses – and fears of getting sick – may result in citizens doing their own self-imposed lockdowns as they hesitate to leave their homes.

The result could be a repeat of 2020 – workers failing to return to factories, truckers not being available to transport goods, and dock workers not showing up at the ports. A new supply chain crisis would ensue.

Potential impact on PPE

As for PPE, overwhelmed Chinese hospitals, increases in testing, and panic hoarding of supplies might create a drastic increase in disposable glove demand, which would cause Chinese glove manufacturers to divert products to the domestic market in China, resulting in delays and shortages in the U.S.

Depending on the magnitude of the crisis, gloves made in other countries such as Thailand and Malaysia could end up being purchased by the Chinese government to meet demand.

Higher demand and supply disruptions could then give manufacturers the opportunity to increases prices, which have been falling over the past year.

Already, there are some early and potentially ominous signs. Factories are starting to hoard medical supplies. In Beijing, a surge in Covid cases is causing high demand and shortages for medical supplies.

What this means for you

There is no way of predicting whether such dire scenarios will pan out. Perhaps outbreaks will be more sporadic and manageable, and new and better vaccines could reduce infection rates.

Regardless, this is a good time to check in with your suppliers to find out whether they are making contingency plans for products they import from China, such as carrying extra inventory.

Many importers, including Elara, have been diversifying their supply chains to become less reliant on China, not just because of Covid, but also due to political and trade tensions.

Even so, our country is still very reliant on Chinese-made goods. In our industry, certain products are almost exclusively made in China, such as vinyl gloves. Even with the best “Plan B,” supply chain issues with China could be coming back.