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German businesses to leave China due to supply chain disruptions

German companies plan to withdraw from China as Beijing’s extreme zero-Covid policy is disrupting the global supply chain.

Ma Mingbo, the chief representative of the German Chamber of Commerce in Shanghai, said that Chinese authorities disrupted its supply chain by banning flights and closing the city, so German businesses are restructuring their supply chains and looking for other suppliers. Still, they will suffer longer times of delivery and higher pricing.

According to Deborah Elms, executive director of the Asian Trade Center in Singapore, supply chain interruptions would stay unsolvable if Chinese authorities continue to use extreme measures to combat the COVID-19 pandemic.

In a survey, roughly one-fifth of German businesses said they would consider withdrawing from China this year or later if the disease did not improve and the lockdowns continued.

A new wave of coronavirus outbreaks has recently broken out in Xi’an and Tianjin in Shaanxi province and many counties and cities in Henan and Guangdong provinces. Xi’an is an important city for producing smartphones and auto parts chips, where Samsung and Micron located their factories.

Authorities have adopted strict control measures in the Chinese urban and rural areas, even completely closing Xi’an. After authorities locked down these areas due to the epidemic, manufacturing operations of the businesses there were severely hit.

Liu Peizhen, director of the Industrial and Economics Division of the Taiwan Economic Research Institute, pointed out that even if the local authorities allow the semiconductor companies to produce typically under the blocked city, there are still problems in the external transportation link.

As a result, Global semiconductor supply and demand will be disrupted in the short term, and the trend of price increases is unlikely to slow down.

Chen Huasheng, director of the Cross-Strait Development Research Center of the Taiwan Economic Research Institute, said that the lockdown should end as soon as possible, maybe no longer than two weeks. However, if the disease is not controlled by the Lunar New Year, the situation will deteriorate further, and workers could not return to work after the holiday. Therefore manufacturing will be halted.

Radio Free Asia reported that Chinese apparel factories had stopped production, and natural gas shipments have been halted because of the extreme lockdown measures.

Some large department stores or food chains, such as Walmart, are facing challenges in the supply chain of goods, and their inventories may decline significantly.

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