China Covid-19 Lockdowns Hit Factories, Ports in Latest Knock to Supply Chains
Toyota, Samsung and Volkswagen are among companies with production affected as economists warn of more challenging bottlenecks ahead
HONG KONG—With Covid-19 flaring up across China, major manufacturers are shutting factories, ports are clogging up and workers are in short supply as officials impose city lockdowns and mass testing on a scale unseen in nearly two years.
The prospect of continued disruptions in the world’s second-largest economy, which has a zero-tolerance strategy for combating the pandemic, is heightening fears that the disruptions will ripple through the global economy. Already, companies including memory chip maker Samsung Electronics Co., German auto maker Volkswagen AG VOW 1.85% and a textiles company that supplies Nike Inc. NKE -0.88% and Adidas AG ADDYY 2.97% are suffering production hitches.
Since late December, officials have taken measures to counter Covid-19 outbreaks in several Chinese cities, including the eastern port of Tianjin, Xi’an in central China, and the southern technology hub of Shenzhen. The world’s third-busiest container port of Ningbo-Zhoushan, south of Tianjin, risks worsening backlogs from restrictions on trucks and warehouse operations after more than two dozen Covid-19 cases were confirmed in the surrounding area.
Chinese authorities are adhering to the same playbook that successfully curtailed initial outbreaks of the pandemic and caused intermittent disruption to production and supply chains.
The potential consequences are more severe this time, economists warn, because of the highly contagious nature of Omicron, which has been detected in some areas of China. The variant is hitting the country as Beijing seeks to contain outbreaks ahead of the Winter Olympics set to begin on Feb. 4.
“The risk posed by the Omicron variant is that we could take a huge step back in terms of supply-chain bottlenecks,” said Frederic Neumann, co-head of Asian Economics Research at HSBC. “This time, the situation could be even more challenging than last year given China’s increasingly significant role in global supply.”
Several economists said China may escalate its containment policy and some have touted the possibility of a nationwide lockdown, unseen since April 2020. Goldman Sachs on Tuesday cut China’s 2022 growth forecast to 4.3% from 4.8% in light of the latest Covid-19 developments.
Toyota Motor Corp. TM +0.21% said operations on Monday and Tuesday at its joint-venture factory in Tianjin came to a halt because of mass testing requirements imposed across the city. About 14 million residents in Tianjin, an industrial hub in northeastern China that accounts for 1.7% of China’s exports, were tested after two cases of the Omicron variant were detected.
A Volkswagen plant based in the city was also closed, Stephan Wöllenstein, the auto maker’s China chief executive, said Tuesday. The German car maker recently also closed a plant in Ningbo, a port city in eastern China, after another small Covid-19 outbreak, he said.
Mr. Wöllenstein added that in many cases, Chinese authorities have brought local outbreaks under control in a few weeks, allowing businesses to restart operations.
“We are monitoring very carefully what’s happening over there because Omicron has the potential to significantly change the picture in China compared to 2020 and 2021,” Guillaume Faury, CEO of Airbus EADSY -0.46% SE, the world’s largest plane manufacturer, said during a conference call Monday. He said so far there haven’t been any supply disruptions in the country, including in Tianjin, where the company runs a final assembly line that produces aircraft including the A320 single-aisle passenger plane.
Western consumers and retailers have become more dependent on China since the start of the pandemic for products from bikes to laptops, and China’s trade surplus is expected to have hit a record high, by value, in 2021. The risk is that “over the coming months we’ll experience the ‘mother of all supply chain’ stumbles: an Omicron-driven stall in factory Asia,” said Mr. Neumann.
Two of the world’s largest memory chip makers have experienced problems in Xi’an, a central Chinese city where the local government put in place strict pandemic restrictions starting Dec. 23.
South Korea-based Samsung Electronics is having trouble getting enough employees where they are needed because of the city’s restrictions on residents leaving home, according to people familiar with the matter. That might cause a slight decline in output in the short term, they said. A Samsung spokeswoman referred to an earlier statement saying the company would take all necessary measures to ensure that customers aren’t affected by what it described as an adjustment to its Xi’an operations.
U.S.-based Micron Technology Inc. said in late December the lockdown in Xi’an has reduced its workforce at its site in the city, affecting output of its DRAM memory-chip products.
In Ningbo, Shenzhou International Group, a supplier to global sports brands including Nike, Adidas and Fast Retailing Co.’s Uniqlo, said some production sites were locked down from Jan. 3 after 10 cases were detected in Ningbo’s Beilun district. As of Monday, part of the production has resumed operations, it said.
Employees of Foxconn Technology Group, a supplier to Apple Inc., and Huawei Technologies Co. were among workers who took Covid-19 tests in southern Shenzhen, according to the companies.
Business executives and industry analysts expect further disruptions could rattle China’s manufacturers and ports as new outbreaks emerge.
This week, more than five million people living in China’s central city of Anyang entered a citywide lockdown after more than 80 cases were confirmed locally, including two Omicron cases. In Henan’s capital city Zhengzhou, where many of the world’s iPhones are assembled by Foxconn, the local government required all residents of the city to undergo Covid-19 tests.
If the Omicron variant spreads across Asia more widely after sweeping through the U.S. and Europe, economists say it could add to rising inflation and potentially prompt central banks such as the Federal Reserve to accelerate tightening of monetary policy.
Within China, the economic risks of sticking with strict Covid-19-related restrictions are growing.
A week’s delay of essential trade at the Ningbo port, about 685 miles south of Tianjin, could affect trade valued at $4 billion, including the exporting of $236 million of integrated circuit boards and $125 million of clothing, according to a study by the Russell Group, a supply chain consulting firm. A container terminal at the Ningbo port was shut down for two weeks in August after a single case was detected.
In Nantong, a city in China’s eastern Jiangsu province, Mei Wenlong, owner of an electrical-equipment factory, said Omicron-related disruptions could spill over to his suppliers in coming weeks. His factory, with 40-plus employees, was among those in the region hit by a temporary power crunch last fall.
“Omicron hasn’t affected us much but they could come sooner than expected,” said Mr. Mei. “There’s not much you can do. We’ll learn to deal with it when it comes.”
Psy-Ops are a crucial weapon in the war against disinformation
Sweden’s new psychological operations agency will attack falsehoods that spread online like a virus
The writer is a fellow at the American Enterprise Institute, a think-tank
When Sweden’s Navy tried to hunt down a suspected enemy submarine in the Stockholm archipelago eight years ago, its efforts were ridiculed by Russian media and officials, who trolled their armed forces chief and accused him of pursuing a “phantom” vessel. Since then, hostile states including Russia, China and Iran have increased their use of disinformation and online propaganda to amplify anti-vax sentiment and foment political tensions in Europe and the US. Concerned about the potential for this to undermine democracy, Sweden has just launched an agency for psychological defence. Other countries would do well to follow its example.
Mikael Tofvesson, head of the new agency’s operative division, says aggressors are increasingly trying to sow division by targeting areas of public concern such as crime, Covid vaccinations, the government’s response to the pandemic, and immigration. “These are low-intensity campaigns that are constantly in operation, and when a specific issue is in the news the activity increases,” he tells me.
As many countries have found, the pandemic has spawned a new breed of disinformation, which has spread as rampantly as the virus. This is not only from usual suspects but also from new actors, who are copying Moscow and Beijing’s methods. Private sector organisations are using a commercial offering known as “disinformation as a service” to conduct malign influence operations against their competitors.
The results are alarmingly obvious. Disputes about Covid-19 and the vaccines to fight it are already dividing populations. And just as the minority of people who refuse vaccines undermine wider efforts to stamp out the virus, a minority of citizens can ruin their countries’ resilience against adversaries by believing the damaging falsehoods spread by the other side. The rumour unleashed by Russia’s KGB in the 1980s that the US army created HIV — which is still in circulation now — shows the lasting harm of an eye-catching campaign. The Covid pandemic has been fuelled by the fact many people believe anti-vax disinformation and distrust messaging from their own governments. Just imagine the effect that incendiary disinformation could have on the current stand-off between Russia and Nato.
Public trust in the government is the Achilles heel of western democracies seeking to defend themselves against innovative adversaries. Disinformation aimed at weakening public confidence in its military forces or political leadership can have a potent destabilising effect. The US’s deep social and ideological divisions may be rooted in its domestic political history, but Moscow’s disinformation campaign ahead of the 2016 presidential election helped to sow doubt about America’s democratic institutions.
The Swedish Psychological Defence Agency will monitor malign influence by exposing both the aggressors and their methods. I believe it should go further, by launching information counter-strikes against the offending country’s ruling elite. In future, Nato and its allies could respond to disinformation campaigns by revealing some of the overseas properties owned by senior officials in the hostile country.
But as with Covid, the most important task in psychological defence is to inoculate the population against believing false information — a job that Sweden’s new agency will also handle. This involves teaching the public how to verify information. A citizenry able to distinguish truth from falsehoods is vital, not just from a national security perspective but for protection from more everyday threats such as quack cures peddled on the internet.
Other countries, too, should show they’re serious about fighting the disinformation virus and immunising against it. Otherwise it will undermine our societies and render even the most sophisticated military defences useless.
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UK financial watchdog to review cost of market data
FCA responds to complaints over pricing for benchmarks, indices, credit ratings and trading data
The UK’s financial regulator is to review the availability and cost of market data after customer complaints that limited competition may be pushing up prices and affecting their investment decisions.
The Financial Conduct Authority said on Tuesday that it was concerned about pricing in markets for benchmarks, indices and credit ratings, as well as the trading data distributed to customers by stock exchanges, information providers and alternative trading venues.
Data is one of the most sensitive areas of trading, with exchanges and their broking and investor customers frequently arguing over ever-rising costs and the ownership of information. Benchmarks, such as London’s FTSE 100, are widely used across all markets, from shares to derivatives, for valuations of thousands of individual portfolios.
The study into market data services will begin in the summer, the FCA said. The regulator will launch a review of credit ratings data by the end of the year, it added.
The FCA’s review, which began in March 2020, follows similar studies by regulators in the US and European Union in to market practices and the terms for the sale of trading data.
Brussels wants to make it easier for banks and fund managers to find prices of stocks and bonds throughout the single market and has mandated a “consolidated tape” that bundles together information from trading venues in the bloc.
Access to and the cost of data is highly contentious. The sale of trading data and financial benchmarks is a significant component of stock exchanges’ revenues but their customers, like fund managers and high-frequency traders, often complain over the ever-rising costs.
Some regulatory mandates require investors to have the most up-to-date and accurate prices. Much of the market data is not standardised, making it costly and time-consuming to go to each venue. Technical issues and high costs may also act as a deterrent to switching benchmark providers, the FCA said.
Exchanges say they provide market service that underpins the quality and reliability of the market, and its cost is only a fraction of the revenues customers earn.
The regulatory push comes as the UK government is examining a range of wholesale market practices, in order to boost the City of London’s global pull for international investors after Brexit. Last year Chancellor Rishi Sunak committed to helping a similar tape of record emerge for the UK.
“Access to wholesale data is really important for those who want to make investment decisions. Without it, they lack the information they need to make properly informed choices,” said Sheldon Mills, executive director, consumers and competition at the FCA.
Gapping down
In reaction to earnings/guidance:
- PACB -10.4%, BIG -5.8% (guides JanQ EPS below consensus, cites softening of traffic), NTUS -2.7%, TAK -0.9%
Other news:
- IMNM -11.6% (provides update on IMM-BCP-01; receives clinical hold letter from FDA)
- FUSN -7.5% (announces nomination of first targeted alpha therapy candidate in collaboration with AstraZeneca)
- FTI -6.6% (announces sale of stake in Technip Energies)
- MTDR -4.3% (announces planned retirement of CFO)
- RIVN -3.8% (produced more than 1000 vehicles in 2021 according to WSJ)
- NTST -1.7% (prices offering 9 mln shares of common stock at $22.25 per share)
- OR -1.1% (provides preliminary deliveries update for Q4)
- TRGP -1% (to acquire its development company joint ventures for $925 mln)
Analyst comments:
- CCOI -3.9% (downgraded to Sell from Neutral at Goldman)
- IBM -2.3% (downgraded to Sell from Neutral at UBS)
- CLF -1.5% (downgraded to Peer Perform from Outperform at Wolfe Research)
- BILI -1% (downgraded to Mkt Perform from Outperform at Bernstein)
- AA -0.9% (downgraded to Hold from Buy at Deutsche Bank)
- AMT -0.9% (downgraded to Neutral from Buy at Goldman)
Refurbished iPhone Seller Back Market Hits $5.7 Billion Valuation
Fresh funding for electronics reseller underscores heady market for startups in Europe
Back Market, an online marketplace that sells refurbished iPhones and other electronic devices, has raised funding that boosts its valuation to $5.7 billion, leapfrogging what it was worth less than a year ago, according to the company and its investors.
Founded in 2014, Back Market fixes and resells electronic goods, including Apple AAPL 0.01% and Samsung smartphones and tablets, MacBook, Dell and Microsoft laptops, Krups coffee makers and Dyson hair dryers.
The company, based in Paris, raised $510 million in its latest funding round. Leading the investment was Sprints Capital, a London-based investment firm that counts online payments company Revolut among its other technology-company holdings.
The new $5.7 billion valuation is almost an 80% jump from the $3.2 billion level Back Market achieved in May, when it raised $335 million. The increase underscores the heady market for startups in Europe, which had previously been seen as an also-ran in the tech universe.
Also joining the investment round were the e-commerce operator’s existing investors, General Atlantic; Eurazeo, a Paris-based private-equity firm; Aglaé Ventures, the venture-capital arm of luxury titan Bernard Arnault; and London’s Generation Investment Management LLP.
Back Market, based in Europe, has earmarked the new funds to double the size of its staff in the U.S. to about 100 this year and to boost its total global employee count by 350 to 1,000. It entered the U.S. in 2018 and expects to generate triple-digit annual revenue growth this year, said Thibaud Hug de Larauze, its co-founder and chief executive.
Refurbishers and brands sell directly to consumers through Backmarket.com and the company earns a commission on each sale. The company doesn’t disclose financials.
The investment is a bet on growing consumer demand for products that reduce electronic waste and offer discounted prices, particularly at a time when inflationary pressures are increasing.
“The sales growth of new electronics and the mounting pressures to divert these devices from landfills creates a massive opportunity for Back Market to win more business,” said Henrik Persson, Sprints’ managing partner.
Electronic waste contains toxic additives and hazardous substances such as mercury, yet only 17.4% of 2019’s e-waste was collected and recycled, according to a United Nations report published the following year.
Back Market competes with U.S.-based platforms like Swappa and ecoATM International Ltd. But unlike some of its competitors, all of its items come directly from certified refurbishers, distributors and brands.
The defective rate of devices sold over Back Market’s platform is about 4%, almost on par with the average unofficial rate of new devices, the company says. All purchases come with a contractual warranty that allows buyers to return faulty devices for a full refund.
The company hopes refurbished electronics can replicate the secondhand car market. Refurbished devices represent about 6% of total global annual sales of electronics. By comparison, about 70% of cars purchased are used, Mr. Hug de Larauze said.
Gapping up
In reaction to earnings/guidance:
- ACCD +10.9%, NARI +6.8%, SONX +6.6%, BBW +6%, ANF +5.9%, BARK +5% (also names new CEO), VECO +5%, ILMN +4.6% (also announces multiple new partnerships), PI +4.4%, CRL +2.2%, SLGC +1.9%, OCDX +1.7%, DHR +1.6%, CVS +1.4%, DLTH +0.8%, NOK +0.6%
Other news:
- BDTX +19.6% (FDA allowance of IND Application for BDTX-1535 a masterkey inhibitor of EGFR for the treatment of gliobastoma and non-small cell lung cancer)
- VIR +8.6% (Vir Biotechnology and GlaxoSmithKline plc (GSK) announce that the US government will purchase an additional 600000 doses of sotrovimab enabling further nationwide access to sotrovimab for patients)
- QSI +7.7% (provides commercial update)
- BLUE +7.3% (provides updates on FDA reviews and assets for FY22 ahead of JP Morgan Healthcare conference)
- FREY +4.1% (FREYR Battery and Aleees to pursue LFP cathode manufacturing joint venture)
- ZY +3.9% (Debuts Automation Business and Shares Program Portfolio at 40th Annual JP Morgan Healthcare Conference)
- VLDR +3.6% (announced a five-year sales agreement for its lidar sensors with QinetiQ )
- BCAB +3% (BCAB announces clinical collaboration with BMY)
- VSTM +2.6% (outlines key strategic priorities and upcoming catalysts to support its lead compound VS-6766 in 2022)
- EXK +2.3% (Q4 production)
- EPAM +1.7% (EPAM Continuum appointed strategic digital partner for launch of INEOS Automotive's new Grenadier Vehicle)
- STAG +1.6% (names new CEO effective July 1; also names new CFO)
- INTC +1.1% (names new CFO comes over from Micron)
Analyst comments:
- JNPR +4.5% (upgraded to Buy from Underperform at BofA Securities)
- AAL +2.2% (upgraded to Equal-Weight from Underweight at Morgan Stanley)
- ATI +2% (upgraded to Outperform from Market Perform at Cowen)
- CERT +1.9% (upgraded to Buy from Hold at Jefferies )
- AMD +1.6% (upgraded to Overweight from Sector Weight at KeyBanc Capital Markets)