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Shenzhen Shutdown – Australia’s Latest COVID Disaster

While the world suffers through the economic impacts of Russia’s invasion of Ukraine — with everything from petrol to lithium-ion batteries skyrocketing — Australia will soon be impacted by yet another COVID-related problem, stemming from China where COVID is again rampant.

China has, this morning, locked down the cities of Shanghai and Shenzhen, two of the world’s biggest electronics manufacturing hubs, as the region attempts to quash a sudden outbreak of COVID-19 cases.

The Shenzhen government has ordered all non-essential businesses to suspend business for at least a week, starting from today. It has also halted public transportation within the city, and stopped buses from travelling to and from nearby provinces.

“Only businesses essential for daily life, such as markets, pharmacies and medical institutions, are allowed to keep operating as usual, while restaurants can only take orders for delivery,” according to Nikkei Asia.

This means that local businesses TCL, Oppo, and Huawei will all be forced to halt operations, while Foxconn — a Taiwanese company with one of its biggest manufacturing hubs in Shenzhen — will face severe supply shortages.

The shutdown of Foxconn in particular will deal a huge blow. An estimated 40 per cent of all consumer electronics sold globally are manufactured by Foxconn.

Nintendo, Microsoft, and Sony’s gaming devices, Google’s Pixels, various Apple products, Xiaomi devices, Nokia phones, and CPU sockets used in AMD’s Ryzen processors are all made by Foxconn. The company is the largest private employer in China.

This shutdown, on top of the congoing chip shortages, and logistics woes from both COVID and the war in Ukraine, will spell havoc for technology prices in Australia.

The Yantian terminal in Shenzhen sees 13 million shipping containers come through its port every year. It is the largest shipping port in China, and the third-largest in the world.

Last August, when the Yantian terminal in Shenzhen was closed, after numerous port workers tested positive, the cost of shipping a 40-foot container from China to Australia blew out to A$19,000, compared to a pre-pandemic cost that sat between $3,000-$4,000.

This led many to switch to air freight, with the likes of Korean Air retro-fitting its passenger plane to freight cargo during the pandemic, operating 800 cargo-only flights each month, across 65 routes.

This time, however, petrol prices have soared to the point where this is no longer financial viable.

The ACCC this morning announced that February prices for both international refined petrol, and average retail petrol in Australia’s five largest cities, hit an eight-year high.

“The world was already experiencing high crude oil prices late last year due to the continuing actions of the OPEC and Russia cartel, and the enduring Northern Hemisphere energy crisis,” ACCC Chair Rod Sims said.

“The shocking events in Ukraine have forced crude oil prices even higher, as Russia is a major supplier of oil,”

China’s shutdown might seem excessive, given yesterday there were only 60 cases in Shenzhen and 64 in Shanghai.

By comparison, a fully-operational Hong Kong is reporting over 30,000 daily cases.

While the shutdown is expected to only last a week, a day-long closure of two of Foxconn’s three Zhengzhou factories last July, due to flooding, caused major production delays for Apple’s iPhone 13.

 



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