A rise in COVID-19 cases, along with related societal shutdowns, is reducing productivity at factories in China, multiple surveys have shown.

A new study from the American Chambers of Commerce in Shanghai and China found that 82% of surveyed manufacturers reported slowed or reduced production due to a lack of employees, inability to obtain supplies, or government-mandated COVID-related lockdowns. Shanghai, a city of 26 million people and an important business hub, was facing a sweeping lockdown as cases there rose.

The survey detailed that 57% of total respondents, including manufacturers and other businesses, have experienced disruption to their supply chains – such as transportation and shipping issues – due to the increase in COVID cases and government countermeasures. Among manufacturers in particular, 86% have experienced supply chain disruption.

The findings from the AmCham study, which polled businesses in the Shanghai and Jilin province areas, came on the heels of two bigger surveys that showed China’s manufacturing broadly contracted in March, mainly due to COVID as well as geopolitical economic uncertainty caused by Russia’s invasion of Ukraine.

The Caixin/Markit Manufacturing Purchasing Managers’ Index (PMI) fell to 48.1 in March, down from 50.4 the previous month. The performance marked the steepest rate of contraction since February 2020. Readings 50 and above denote expansion in the sector; readings below that signify contraction.

As Shanghai continues its uphill battle against Covid-19, China has deployed 2,000 medics from the People’s Liberation Army and thousands of medical teams from around the country to help contain the outbreak. pic.twitter.com/1dC6m9QUDQ

— South China Morning Post (@SCMPNews) April 4, 2022

The Caixin survey is a private-sector study that focuses more on small firms in coastal regions. Its findings were in line with China’s official manufacturing Purchasing Managers’ Index, which retreated to 49.5 in March, down from 50.2 in February, according to the National Bureau of Statistics. That was the quickest rate of contraction since October 2021. Again, 50 is the line separating growth and contraction.

“PMI weakened as the Omicron outbreaks in many Chinese cities led to lockdowns and disruption of industrial production,” Zhiwei Zhang, chief economist at Pinpoint Asset Management, told CNN. “As the Shanghai lockdown only happened in late March, economic activities will likely slow further in April.”

29%
Percentage of global manufacturing output that China accounts for.

(United Nations)

The majority of promotional products sold in North America are produced overseas, particularly in China. The increase in COVID cases and related shutdowns implemented under China’s “zero tolerance” policy on COVID have already impacted factory partners of at least some suppliers in the promo industry.

If outbreaks, restrictions and ultimately reduced productivity at factories in China persist, it could exacerbate issues like inventory shortages for the domestic promo industry, though some leading suppliers have said they’ve factored disruption into their sourcing models and are better positioned to keep product levels deeper than they were earlier in the pandemic.

Still, some suspect continued disruption in China will reverberate to the domestic promo industry.

“I imagine it will lead to a continuation of the same challenges we’ve seen over the last year: Prices will continue to increase and inventory availability may also be affected,” said Eli Schneider, director of operations at Los Angeles-headquartered Top 40 distributor BAMKO (asi/131431), which does considerable direct importing through its global supply network.