Will China’s zero COVID-19 policy mean renewed export disruptions?

According to Julian Evans-Pritchard, senior China economist at Capital Economics, "There is no prospect of China lifting its zero-COVID policy in the near future, and we don't expect any meaningful relaxation before 2024."

So, with global production and shipping delays likely to remain elevated for the rest of 2022 and beyond, export shortfalls have led to a large number of companies rethinking their global supply chain setup.

Responding to supply chain disruption 

For businesses that have historically depended on China for exports, many are moving production and supply chains to countries including Vietnam, Thailand, India, Mexico and back to the UK.

Looking at the EY Industrial Supply Chain Survey, businesses have already begun to offset the disruption: 

• Over the last two years, 53% have near- or re-shored some of their operations 
• In the next two years, 44% are planning new or additional near-shoring activities 
• In the last two years, 57% have established new operations in one or more additional countries, meanwhile 53% plan to do so

The future of supply chains

As businesses embark on a journey of recovery based on the weaknesses they’ve been exposed to in recent years, they are reassessing their supply chains more than ever before - again highlighted in the EY Industrial Supply Chain Survey:

• 77% are increasing their total number of suppliers 
• 63% are increasing the number of countries where their suppliers are located
• 55% have moved suppliers closer to their own operations
• 47% have moved suppliers closer to their customers

As China’s policy shows no signs of slowing down, businesses are being forced to adapt. Supply chain disruption is a key business risk and with predictions that this will have a greater impact on the global economy than the ongoing war in Ukraine, the consequences will be a major shock for businesses trying to recover and rebuild an already fragile supply chain network.

With ongoing supply chain pressures taking some industries to breaking point, now is the time to think about what might come next and how reimagining supply chains will help to achieve resilience in the future. 

To minimise the risks that future disruptions could bring, organisations should focus on:

• Diversifying suppliers to spread and reduce risks
• Creating a backup network that can be onboarded as quickly as possible to prevent supply chain disruptions and delays
• Developing a technology-led approach to evolve faster and become more resilient
• Supplier pre-qualification to limit the risks against financial implications.
• Consistently review supplier performance to improve supply chain visibility and identify any areas of risk

To find out how you can identify risk in your supply chain, explore Alcumus’ Supply Chain Compliance solution.