A Covid-19 Lockdown in China’s Commerce Hub is Rattling Global Supply Chains

China is experiencing the worst Covid-19 outbreak in more than two years.

Shenzhen in south China’s Guangdong province, an economic powerhouse bordering Hong Kong, went into the Covid-19 lockdown on March 14. Feature China/Future Publishing via Getty Images

A sweeping Covid-19 lockdown across China’s busiest cities and ports may cause significant disruption to the global supply chain and affect American consumers—from stocks of best-selling merchandise on Amazon running low to possible delays for new iPhones and iPads.

On March 14, a citywide lockdown hit Shenzhen, a tech and commerce hub on China’s south coast, as the local government worked to contain rising Covid cases and block the virus’s spread from neighboring Hong Kong, where infections had been skyrocketing since late January. Public transportation, schools and non-essential businesses are shut for at least a week. National delivery services have stopped picking up parcels from Shenzhen.

Shenzhen is home to half of all China’s retail exporters, according to the China Cross-Border E-Commerce Association, a trade group that represents 3,000 exporters in Shenzhen. The lockdown has disrupted the production and delivery of countless goods sold on international online marketplaces, including Amazon and Walmart, the trade group’s head told Bloomberg. Among companies that have halted operations are the manufacturer of Ekouaer, a best-selling lounge-wear apparel on Amazon, and Tomtop, a popular cellphone accessory brand on Amazon and Walmart, Bloomberg reported.

Shenzhen is also a center for consumer electronics makers, including Apple (AAPL)’s largest supplier, Foxconn. Since March 14, Foxconn has paused operations at two plants in the area. The company said it has relocated some urgent orders to other factories that are not yet subject to pandemic restrictions.

Foxconn’s Shenzhen campus is one of its two mainland China sites that produce 70 percent of the world’s iPhones, according to market research firm IDC and Nikkei Asia.The other iPhone manufacturing site, in Zhengzhou, of Henan Province in central China, is still up and running. But a lockdown or other restrictive measures are possible if Covid-19 cases in the area rise sharply. In recent weeks, Henan Province has been reporting daily new cases in the low double digits.

The worst Covid outbreak since 2020

On March 15, China’s National Health Commission reported 5,100 new cases from 21 provinces and cities, including capital Beijing. Although the number is low compared with other countries, it’s the highest China has seen since the first coronavirus outbreak in Wuhan in January 2020. About 80 percent of new cases were reported from the northeastern province of Jilin, which borders North Korea.

It’s still unclear how the latest outbreak started. Official data show that the wave is driven by the Omicron variant, which makes up about 80 percent of new cases, according to the Chinese Center for Disease Control and Prevention.

As of March 16, more than 37 million people are in lockdown. Dongguan—a manufacturing hub for apparel, car, shoes and toys near Shenzhen—was placed under a seven-day lockdown starting March 15.

Businesses work to minimize lockdown impact

To address a sudden halt of logistics, Amazon said it’s diverting its China freight to warehouses in parts of southern China that are still open. The trade group in Shenzhen said it’s “actively negotiating” with local authorities to try and get some parcel deliveries resumed soon.

At Foxconn, production partially resumed on March 16, a company spokesperson told CNBC, but only in factories equipped with employee housing. Per lockdown rules, the partial reopening is managed under a “closed loop” process that doesn’t allow employees to leave the campus after work, the Foxconn spokesperson said.

A Covid-19 Lockdown in China’s Commerce Hub is Rattling Global Supply Chains