Over the course of the pandemic, some products have dominated the media landscape due to their increasingly short supply: from toilet paper and masks to lumber and chemicals. One of the driving factors behind these shortages has been the widespread shutdown of factories and plants, especially in major export-producing countries like Vietnam, Thailand, and China. Now, as large Chinese cities enter another lockdown, supply chains are set to experience even more delays.
The largest Chinese city covered by the current lockdown is Xi'an, a city of 13 million people. While Xi'an might not be as important to the global economy as Wuhan, the Chinese city locked down in 2020, it is a key supplier of one of the most hot-button products of the entire pandemic: processor chips. Along with the chips used in smartphones, Xi'an plants also produce auto parts and other goods.
"Lockdowns in China are already causing disruptions," economists with Nomura wrote in a Jan. 7 report.
Prior to the current lockdowns, the Chinese economy was already receding, largely due to unrelated pressure from the government to crack down on surging debt amongst real estate developers and other major companies.
Among the affected Xi'an factories are a Samsung Electronics location and a Micron Technologies Ltd. (NASDAQ: MU) plant. According to statements from these companies, the supply of the products made in these plants may be impacted.
It's worth noting that the chips in question aren't the same as the auto-processor chips that have already been in short supply. Experts say this could help mitigate the impact of the Xi'an closures. The chips made in the Samsung and Micron plants are smartphone chips including DRAM and NAND memory chips.
Among the other Chinese cities with areas under lockdown is Ningbo, one of the busiest ports in the world. This reduced access is expected to increase already high shipping costs.
China's efforts to control and stop COVID-19 have been largely successful, according to reports from the government. On Jan. 7, the country reported 174 new cases nationwide, compared to the U.S.'s record-high 900,047 new infections on the same day. While governments like the U.S. are attempting to prevent any and all economic impacts of COVID restrictions, China has put more focus on actually stopping the virus. Following some of the strictest lockdowns in the world, China's economy rebounded in March 2021, with only small pockets of the country still facing short-term lockdowns.