Shenzhen, the confined Chinese “Silicon Valley”: delays and (new) shortages to be expected

Shortages, especially of smartphones
which the Chinese authorities want measured due to the relocation of production.

While the restrictions are virtually all lifted in France on March 14, 2022, things are far from being so simple in China, which remains one of the rare (the only?) countries to apply a so-called “zero virus” in the face of COVID-19.

Resurgence of COVID-19

This policy, which has made it possible to largely contain the virus over the past two years, seems to be undermined by the Omicron variant, which is increasingly contagious. In recent days, several epidemic foci have been identified in the country.

The response from the authorities has not changed and as soon as cases are identified, gigantic test campaigns are organized. They are accompanied by more or less significant confinements. Thus, after the schools in Shanghai, it is the large city of Changchun (9 million inhabitants) in the north of the country which has been blocked.

Although localized, such decisions have an impact on the Chinese economy and its organization. However, things take on a much different dimension when COVID-19 hits a nerve center, the Chinese “Silicon Valley” in this case.

Disorganized Apple… and many more

In recent days, cases have actually multiplied in the technological center of Shenzhen, a city of 17 million inhabitants bordering Hong Kong, also very affected by the Omicron variant. The response from the authorities was therefore immediate: all non-essential activities must cease at least until March 20.

The population as a whole will go through a three-phase large-scale test with the idea of ​​​​blocking the epidemic once again. In the meantime, this will also, of course, block a good part of Shenzhen’s industry and we are thinking in particular of the semiconductor sector, a key sector for the city which notably houses the gigantic campuses of Foxconn, the main supplier of ‘Apple.

However, the authorities want to be reassuring by indicating that production has been and will be relocated to other factories to minimize the impact of these closures. Still, when we see the many worries of recent months, we can fear shortages. The example of Apple is symptomatic in this regard: Hon Hai assembles in Shenzhen 70% of iPhones worldwide, it will be difficult to compensate for all that.

The very strong ties that unite Apple to Foxconn, and therefore to Shenzhen, should not make us forget that the region is home to many other companies in the sector raising fears of a more general disorganization.

Sources: Bloomberg
, Tom’s Hardware