The spike in COVID-19 cases in China raises fears of disruptions in supply chains, which could pose challenges for many Canadian businesses.
In recent weeks, the Asian giant has abandoned much of its “zero COVID” policy. The latter aroused the discontent of the population and stifled the economy of the country, in particular by forcing significant confinements. The end of these measures had, moreover, been well received by international economic circles.
However, today, not only is the health situation in China worrying all over the world, but its economic effects as well. Several media are reporting that companies have to slow down their activities due to a large number of sick employees.
“It is very likely that this rise in cases will lead to disruptions in global supply chains,” said Swapna Nair, senior economist at The Conference Board of Canada, specializing in international trade.
Moreover, Canada and Quebec remain dependent on their second international trading partner. Imports of Chinese products have not declined during the pandemic.
“Since the start of the pandemic, the closures of various factories in China and the ‘zero COVID-19’ policy have disrupted global supply chains,” the organization Manufacturiers et Exportateurs du Québec said by email. “We will have to monitor the situation closely, because in Quebec we risk feeling the effects and economic impacts of the explosion of COVID-19 cases in China. »
At the Canadian Federation of Independent Business (CFIB), it is indicated that it is still too early to know what the consequences of the current situation in China will be. “If factories stop producing, it will be felt in a few weeks or a few months,” explains Jasmin Guénette, vice-president of national affairs for the organization. The supply problems caused by the pandemic, such as delays and cost increases, are already causing a lot of headaches for Canadian SMEs, many of which have not returned to their normal level of income, says Mr. Guénette.
An uncertain evolution
Everything will depend on the evolution of infections in China in the coming months – and how Xi Jinping’s government will handle the situation – according to Ms.me Nair. Many workers will soon return home for the Chinese New Year festivities, which begin on Jan. 22, she said. Will this lead to a bigger spike in COVID-19 cases?
For his part, Simon Véronneau, associate professor at the Naval Postgraduate School, in California, does not believe that there is reason to panic. According to this specialist in supply chain management, the Chinese will do everything in their power to maintain their industrial capacity and their image as a reliable business partner. “If they have misjudged the ‘public health’ side and infections get out of control, then it’s a miscalculation on their part and it could have a negative economic impact,” he acknowledges, however.
Despite everything, China remains a problematic partner, believes Professor Véronneau, given the risk of conflict with this country, particularly with regard to Taiwan. It also encourages companies to diversify their sources of supply.
This is what several of them have started to do, observes Swapna Nair. “If you are looking for alternative suppliers, you may find the products you need, but not necessarily at the same price. For this reason, disruptions in supply chains may not cause shortages, but rather cost increases.
The business community, on the other hand, is in a better position than at the start of the pandemic, she judges, because it has learned lessons from recent hardships. But reducing their dependence on China remains a long-term task.