British firms suffer as China shuts down its factories again

Chinese manufacturers are only allowed to work two days on, then two days off at present.

Sean Welch clicked on the email that had popped up in his inbox. It did not make for easy reading. A Chinese manufacturer serving his Agon Systems business, which provides security tags for retailers, warned him it would not meet delivery deadlines.

“There’s an energy crisis in China,” said Welch, 51. “They’re only allowed to work two days on, then two days off. It will have a massive knock-on effect. And it’s not just this factory.”

For Welch, it means an order his East Sussex firm has from a large US retailer is not being fulfilled. “People think things are going to start getting better. Well if China is only producing two days on, two days off, it’s not going to get better. It’s going to get far worse before it gets better.”

Welch’s supplier is based in Hangzhou — once described by Marco Polo as the most graceful and splendid city in the world. Now regarded as one of the wealthier parts of China, it sits on the southern trading routes of the Yangtze river delta. It is also now among the regions in the country facing surging demand for energy just as Chinese local authorities are pushing through strict climate-related curbs on coal use. After blackouts in some parts of the country, the government appears to be prioritising households over industry where energy is scarce.

For those, like Welch, waiting for Chinese-made goods to arrive, factory shutdowns add to the already well-publicised bottlenecks in shipping and containers.

A survey of big companies published last week by the consultancy Oxford Economics showed that supply-chain disruption posed the greatest risk to the global economic recovery. And only one in five of the firms affected by supply woes thought the worst of the crisis was over. “Businesses see persistent disruption as a greater threat to recovery than coronavirus,” Oxford Economics said. Many expect the problems to continue until the middle of next year.

Data from the shipping journal Lloyd’s List showed that reliability of container lines had fallen to record lows. Just 34 per cent of voyages arrive within a day of their expected arrival time — largely because of vessels having to wait to dock.

However, economists at Berenberg bank pointed to signs that the problem was easing, noting that in October the share of loaded containers stuck in ports was 11 per cent, down from 14 per cent in August, itself double the pre-pandemic 7 per cent. “While the logjams will not vanish overnight, this gives rise to the hope we are now past the worst,” said Salomon Fiedler at Berenberg.

New pressures are emerging, though, like the part-time working imposed due to the energy crisis. Another issue is China’s zero-tolerance stance on Covid, which leads to sudden lockdowns and closures and was described by George Magnus, associate at Oxford University’s China Centre, as “an important aggravation in terms of global shipping”.

Last week, companies queued up to explain how the crisis would bite. Sainsbury’s said customers would have less choice this Christmas — particularly in its Argos shops, which sell staples such as toys and electronics.

Meanwhile, data last week revealed that new-car sales had fallen to their lowest since October 1991, in part due to a lack of semiconductors. Lockdowns around the world led to a surge in demand for consumer goods, and so carmakers found themselves competing with games console and TV makers to secure supplies.

Back in East Sussex, Welch is also affected by the chip crisis, as they are used in the sophisticated tags he provides to retailers. His suppliers “can’t tell me when they are going to get them”.

He has another issue on his mind: the Chinese new year. Next year factories will close from January 21 to February 16. Companies know these dates and factor this into their ordering.

But as Welch pointed out: “If they’re [already] only working two days on, two days off, and they take three weeks off, that will have even more of an effect.”