China’s rapid exit from its zero-Covid policy and subsequent unprecedented Omicron wave took most manufacturers by surprise, leaving many unprepared for the initial impact of high numbers of employees being sick, but the overall outlook “looks brighter”, according to industry insiders. Businesses across the country are seeing various levels of operational disruptions, with many unprepared following the abrupt and extreme policy change announced earlier this month. “Many factories have been closed for holidays in advance, [many are] unable to continue production,” said Steve Xie, who manages a textile export company in eastern China’s Zhejiang province. Due to a large number of workers falling sick, Xie’s factories are unable to operate at full capacity and are unable to meet delivery deadlines. China’s ongoing exit from zero-Covid has taken the market by surprise because of how rapidly it is happening Alfredo Montufar-Helu A manager from an electric machinery manufacturer in Guangxi province said the backlog at downstream factories is causing already strained factories further up the supply chain to shut down due to a lack of orders. “Clients cannot consume their inventories, a simple example is that our packaging materials are piling up at our clients and cannot be returned,” said the manager, who asked to be named due to the sensitivity of the issue. Many remain in favour of the direction China is taking towards reopening, but companies must first survive the immediate disruptions while also bracing for uncertainties that are still clouding the business outlook. “China’s ongoing exit from zero-Covid has taken the market by surprise because of how rapidly it is happening,” said Alfredo Montufar-Helu, head of the China Centre for Economics and Business at The Conference Board. “We expected a more gradual approach, initially aimed at strengthening the preparedness of China’s health system to face the spike in new infections that an eventual opening would have led to. But this did not happen.” The expectations that China’s zero-Covid opening would have led to an immediate release of pent-up demand and rebooting of the economy are unfounded, he added. “The examples from other economies suggest that a series of outbreaks will follow, prolonging the disruption of production and consumption activities,” said Montufar-Helu. Despite the support for China’s easing of its restrictions, the fluidity of the situation has compounded some of the existing planning challenges for German companies, said Robert Herzner, the Hong Kong-based representative at Germany Trade and Invest, the foreign trade and investment agency of the German government. “One main problem, according to our information, is that companies have very limited time to prepare for disruptions,” he said. “Some companies are reporting that half of their employees are on sick leave and only 5 per cent of office workers are physically present. The health of workers is a top priority.” All of a sudden, ironically, we have a predictable time frame to operate with something we never had with the lockdown conditions Joerg Wuttke Smaller businesses are impacted more because of the limited number of staff available, while many have shut down early before the Lunar New Year holiday at the end of January, according to Cameron Johnson, a member of the board of governors at the American Chamber of Commerce (AmCham) in Shanghai. “Uncertainty is the watchword of the day,” he said. “Businesses are unsure how the situation will evolve over the next few months.” The widespread infections can no longer be managed by placing factories into closed-loop systems, said Joerg Wuttke, president of the European Union Chamber of Commerce in China, but operations are likely to return to normal in two or three weeks, he added. “All of a sudden, ironically, we have a predictable time frame to operate with something we never had with the lockdown conditions, “he said. But the sharp policy shift has also fuelled concerns over the lack of predictability and reliability, which foreign investors have said has hurt the allure of the Chinese market, Wuttke added. “[The overall outlook] looks brighter now than at any time in the past months, because companies are becoming better and more creative at responding to the pandemic and they feel that the end of difficulties is in sight,” said AmCham South China president Dr Harley Seyedin. “Some steps taken include companies encouraging their employees to work from home to keep normal operations as much as possible. “Some are exploring new business models which emphasises the application of information and digital technologies.” Additional reporting by Amanda Lee