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End of lockdowns in Shanghai, what consequences for the supply chain?

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the city of shanghai

The metropolis has been at a standstill since mid-March, causing many factories to close.

After nearly two and a half months of lockdown, Shanghai authorities have finally announced that the city will slowly begin to return to normal. This should ease the pressure on the global technology supply chain.

Shanghai lockdown has had a significant impact

Indeed, China’s highly restrictive “zero Covid” policy of imposing strict lockdown at the first sign of the disease was put in place in mid-March. Since then, almost all the inhabitants of the city are blocked in their homes without the possibility to go out, leading to a very worrying situation concerning the mental health of the Shanghai people.

As a result, many factories have had to close down; this has not only led to a drop in production, but has also caused great difficulties for logistics operators and exporters. As McKinsey reminds us, however, some factory employees, as well as those at the Shanghai container port, continue to work and in order to do so, never leave their workplaces, as was the case at the microchip manufacturer SMIC. Thus, while the global supply chain is slowed down, it is not completely stopped either.

Despite this, the consequences are many. The giants Foxconn, Tesla and Toyota have been forced to stop or slow down their production. For its part, Apple has decided to accelerate its withdrawal from China and transfer the majority of its factories to India and Vietnam.

Economic life in the metropolis is picking up

The Shanghai authorities have recently announced that they have controlled the spread of the virus. The districts that have not recorded any new contamination for 14 days will reopen and will have some restrictions imposed. In this context, local stores and shopping malls are slowly reopening, and many public transport services have also resumed service, reports The Register.

City officials explained that 1,700 key production-oriented businesses in the region have resumed work and production, as have 450 key financial institutions and 580 businesses important to foreign trade. Similarly, 88% of factories dedicated to the local e-commerce sector have reopened; companies such as Alibaba and were greatly affected by the lockdown in Shanghai.

Finally, the authorities have also announced subsidy programs for industries, including software development. Moreover, they hope that the containment will have accelerated the adoption by companies of digital management tools, which are considered more efficient than what was used before the pandemic.

If Shanghai begins to reopen, the effects of the lockdowns on the supply chain are likely to be felt for some time, especially as they come on top of the semiconductor shortage and the war in Ukraine, which is also causing significant supply problems around the world.