China’s Tech Leaders Warn Of Widespread Production Halt If Shanghai Lockdown Continues

Two of China’s prominent technology executives have spoken out about the widespread supply chain disruptions caused by the lockdown in Shanghai, warning that many of the country’s industries are facing the prospect of production halts in May if the situation persists.

Richard Yu, who leads Huawei’s auto and consumer business groups, joined EV maker Xpeng’s billionaire founder He Xiaopeng in issuing stark warnings about auto parts supplies in particular. In one of his WeChat posts now widely circulated by local media, the Huawei veteran said many technology and industrial companies—especially those in the auto industry—would have to halt production after May due to the lack of supplies caused by the month-long lockdown of China’s financial hub.

A Huawei spokesperson acknowledged a request for comment but did not confirm his statement. Yu’s comments, which have been reported by financial news outlets including the state-affiliated Cailian, have also garnered on Friday close to two million views on China’s Twitter-equivalent Sina Weibo.

And just one day ago, Xpeng’s He weighed in on the supply chain disruptions with a similar warnings.

“All of China’s OEMs could suspend production in May if supply chain companies in Shanghai and surrounding areas can’t find a way to resume work,” the billionaire wrote to the more than one million followers of his verified Weibo account. “The good news is that some government ministries and departments are working to coordinate. Hope more government ministries could support and work together.”

But the Shanghai lockdown has no end in sight. The city of 25 million is still reporting record numbers of daily Covid infections, bringing total confirmed cases to more than 130,000 since March 1—although most are asymptomatic or only exhibit relatively mild symptoms. Amid simmering public anger about the strict restrictions and mounting economic costs, Chinese President Xi Jinping has said the country would stick to his zero-tolerance approach.

Analysts now forecast China’s GDP to grow at 5% this year, below the government’s target of 5.5%, due to the Covid containment measures as well as the weakening global recovery. In a Wednesday research note, Nomura economists led by Lu Ting expects China’s central bank, the People’s Bank of China, to cut the reserve requirement ratio for the country’s lenders over the next several days to inject more liquidity into the economy.

“China, the world’s second-largest economy and the largest manufacturer, has been facing a rising risk of recession since mid-March,” they wrote, defining recession as negative year-over-year quarterly GDP growth. “We believe global markets continue to underestimate the impact, likely owing to the majority of focus on the Russian-Ukraine conflict and U.S. Fed rate hikes.”

Foreign companies are also struggling to cope. Tesla has had to suspend production at its Shanghai plant for almost three weeks, equating to nearly 40,000 vehicles in lost production. And Apple’s supply chain is dependent on iPhone assembly facilities and laptop parts producers from Shanghai and the nearby Kunshan city. In filings to the Taiwan Stock Exchange, Macbook maker Quanta Computer said it had to halt production in a Shanghai plant. Electronics maker Pegatron said it suspended the company’s iPhone assembly lines in both Kunshan and Shanghai.