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China has forced some of its biggest companies, including iPhone maker Foxconn and oil producer CNOOC Ltd., to operate within a “closed loop” restricted system for seven days as the southern manufacturing hub of Shenzhen battles its latest Covid outbreak.
The city government has asked its 100 biggest companies, including automaker BYD Co., networking giants Huawei Technologies Co. and ZTE Corp. and drone-maker DJI to restrict operations only to employees living within a closed loop or bubble, with little to no contact with people beyond their plants or offices. Authorities also asked companies to reduce unnecessary interaction between non-manufacturing staff and factory floors to reduce infection, according to a Shenzhen government notice seen by Bloomberg News.
The lockdown comes as China narrowly escaped an economic contraction in the June quarter, when a series of rolling lockdowns shut businesses nationwide, eroded employment and hurt consumer spending. The Shenzhen action is taking place months before Foxconn Technology Group, which makes the majority of the world’s iPhones, is due to deliver the next generation of Apple Inc.’s marquee device.
A Foxconn spokesperson said operations at its Shenzhen sites “remained normal.” Its plant in the central Chinese city of Zhengzhou is a far bigger iPhone-making hub. ZTE and DJI representatives declined to comment. A spokesperson for the Shenzhen government’s news office didn’t respond to a message seeking comment, while a representative for the city’s industry and infotech bureau said it wasn’t aware of the action when contacted by phone. Huawei, CNOOC and BYD spokespeople didn’t immediately respond to inquiries from Bloomberg News.
China’s Covid Zero strategy, which relies on a playbook of closed borders, quarantines, lockdowns and mass testing, is up-ending its giant manufacturing sector even as the rest of the world lives with the pandemic and opens up.
The measure in Shenzhen rekindles the possibility of Shanghai-style lockdowns that forced tens of thousands of workers into isolation. Apple supplier Quanta Computer Inc., chipmaker Semiconductor Manufacturing International Corp. and Tesla Inc. were among the companies that ran their Shanghai plants in closed loops for weeks or months, when China’s financial hub battled the worst outbreak since Wuhan.
China’s top chipmaker SMIC was among the companies that cut their outlook for the second quarter, while Apple itself predicted that supply constraints would cost $4 billion to $8 billion in revenue.
Economists and academics have urged Beijing to relax its curbs on Covid, among the harshest in the world, which have been blamed for disrupting the economy and triggering widespread protests. In its notice, Shenzhen officials asked local regulators to “resolutely” act on President Xi Jinping’s orders regarding Covid, sticking with Covid Zero policies.
Shenzhen reported 21 cases for Saturday, up from 19 a day ago, according to health authorities. That’s a fraction compared with nationwide numbers: China reported 680 cases for Sunday, according to data from the National Health Commission.
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