How China’s zero-Covid strategy will impact global supply chains
China’s heavy-handed lockdown measures in response to COVID-19 outbreaks have significantly increased operational disruption for business, causing far-reaching impacts on international supply chains – including those connecting Australia and Africa. It is unlikely that the central government will ease its strict Covid-19 restrictions before the 20th Party Congress in late 2022.
In order to enable the trade to flow, the importance of truckers cannot be ignored. International Trade can be considered like a series of intertwining pipes, pushing cargo and containers along regular routes with the aid of logistics and distributers. If these forces are neither consistent or regular, these pipes cannot be cleared, and movement is stymied. In April, a wave of Omicron infections led to a 70-day lockdown in Shanghai. Shanghai lies at the heart of the Yangtze Delta region and is renowned for being an industrial hub. Most of the cities and towns in the region are interconnected by a vast supply chain network that funnels goods overseas through Shanghai's world-class seaports and airports. However, China’s stringent measures on inter-provincial transportation have caused a severe shortage of truck drivers. As such, truck drivers crossing Shanghai borders are still required to provide a nationally recognised 48-hour COVID-19 test and traffic permit.
Due to the lack of truck transport, Shanghai’s ports have had trouble offloading cargo, resulting in a backlog of vessels. In the absence of onward goods transport, warehouses and ports are unable to offload containers from ships. This major supply chain disruption in China has significantly limited the transport capacity of components between factories and restricted the flow of goods from workshops to ports.
With China being Africa’s largest trading partner, the African continent is impacted by China’s limited capacity for logistics and port closures. If any trace of Covid-19 is found on a product, China will shut down the associate lines until it is considered safe (this has the potential to last for a few months). This implies that ships entering that line may already be halfway there and be compelled to deviate from their usual routes to discharge stock in other cities or nations.
Unfortunately, although China is strengthening its trade relations with the African economy during the Covid-19 period, China focuses on lifting trade blockades on more profitable trade routes, such as that with the US, Europe, Southeast Asia, and other developed economies. In addition, the African continent largely depends on imports from China. For example, China is Sub-Saharan Africa’s largest import partner, with a share of 20.50 %. If China’s intricate system of the efficient flow of shipping vessels and lines is shut down, containers are stuck in certain parts of the world, leading to a shortage of containers. When vessels don’t come through to African harbours with containers to offload, it creates a multiplier effect since there are not enough available containers to export products out of the continent.
The Australia-China bilateral trade relationship has also been unavoidably hit by supply chain issues over the past few months. China, as the major supplier of a variety of commodity goods, intermediate goods for manufacturing, raw materials, and consumer goods, has declined exports to the Australian market. According to CEIC, Australia’s total imports from China have decreased from $7.05 billion in February 2022 to $6.03 billion in July 2022, with the lowest level at $5.35 in May this year.
Similarly, China's imports from Australia decreased by 11.1 percent compared to a year earlier in the first seven months, and analysts said it is unlikely that this trend will quickly reverse itself. According to the Australia Agricultural trade report 2021/2022 issued by Rural Bank, fruit exports to China declined for the second consecutive year in 2021/22, falling by $66 million (-19.5 per cent) to $271.9 million. While trade relations between Australia and China remain frosty, China’s ongoing implementation of a ‘zero covid’ strategy is the main cause of the consecutive drop.
Luckily, the impact of China’s disruption of supply chains on China-Africa and China-Australia trade relations may create business opportunities between Australia and Africa. In recent years, Australia has been diverting many of its exports to other countries, such as the US, India, and Canada, but trade relations between the African continent remain underdeveloped. Take the agricultural sector as an example. With the ongoing crisis of Russia’s invasion of Ukraine, African countries are diversifying some of their agricultural products’ sources (such as wheat), instead of heavily relying on Russian imports. Australia, the third biggest wheat exporter in the world, provided 13% of wheat exports by value in 2021. This might encourage Australian producers to explore potential export opportunities with the African continent. In addition to wheat exports, large-scale irrigation technologies (such as the Drip irrigation system), may help improve African food production and is another promising market Australian businesses can consider diversifying into on the African continent.