Businesses brace for bumpy ride as China reopens doors
Business leaders, waiting for China to reopen its borders for the better part of three years, are keeping a close eye on the country’s latest COVID-19 outbreak, with fears that any supply chain logjam could eat into the bottom line of major Australian businesses.
Meanwhile, with the federal government mandating COVID-19 testing for arrivals from China this week, the reality of resuming travel to Australia’s biggest trade partner remains complicated.
Supply chain knots and freight issues are expected to come to a head at the end of this month and in early February, as COVID-fuelled absenteeism in China coincides with the beginning of Lunar New Year to create widespread labour shortages.
Chinese President Xi Jinping abruptly reversed his long-held zero-COVID policy in early December, but the rapid unwinding of restrictions has ignited global concern about data transparency and the virus’ spread to other nations. Australia is among more than a dozen countries, including the US, the UK, the European Union, France, and India to introduce COVID testing requirements for travellers from China.
“We will see disruptions caused by the increasing COVID cases,” said Asialink CEO Leigh Howard. “We still have pervasive supply chain [and] freight related issues. But then we’ve got this traditional multi-week slowdown around the Lunar New Year, so I think it’s all going to merge into one.”
“It’s going to be a prolonged period that impacts production capacity in China,” he said.
Australia’s retail sector is nervously awaiting news about supply chain bottlenecks and expecting more volatility just as inventory concerns started to stabilise at the end of 2021.
“The recent increase in COVID cases and restrictions overseas is likely to create some local challenges in the near future,” Australian Retailers Association boss Paul Zahra said.
Chief executive of Kogan.com, Ruslan Kogan, said the reopening was already starting to cause disruptions.
“We are getting reports from factories that they are struggling with staff numbers and that it’s going to cause order delays,” he said.
The impacts of factory disruptions on consumer electronics sector is also set to be a hot topic as Australian retailers touch down for the Consumer Electronics Show (CES) in Las Vegas this week.
General manager of electronics retailer Bing Lee, Peter Harris, said he would be raising the issue of stock availability with major brands while attending CES.
“It’s certainly on the agenda,” he said. “There are no alarm bells ringing at the moment, but it’s obviously such a significant topic.”
Australian exporters of food and premium goods are expecting better-than-usual demand as Chinese consumers purchase ingredients, meals and gifts, but many acknowledge they may face challenges in getting their products on shelves.
“People are able to access produce in supermarkets, but foodservice might be impacted if restaurant’s cant stay open, or they’re restricted by staff. When you mix those together, that’s when you start to have outcomes hard to predict,” Asialink’s Howard said.
However, China’s COVID outbreak hasn’t deterred business leaders from being generally upbeat about commercial opportunities or about the resumption of travel to and from the country.
Kristy Carr, CEO of infant formula maker Bubs Australia that earned more than half of its total revenue from China in 2022, embraced the easing of China’s zero-COVID policy and dismissed the current wave as “short term”.
“From the back end logistics point of view, I think once we get over this short-term spread, which is impacting many people’s lives, the actual logistics and operations and flow of traffic will be a huge positive for Australian businesses doing trade with China,” she said.
“In many aspects, from an economic standpoint, having a hard and fast spread may actually end up allowing everyone to get back on with their normal lives faster.”
China is a key growth market for Bubs Australia, which has an office of 11 employees in Shanghai, a handful of whom have fallen sick or have family members who have fallen sick, Carr said.
“But for us as a business, we’re exporting and we don’t import raw materials from China … So it’s not disrupting us in terms of our own manufacturing and processes.”
Bubs’ Carr is planning to travel to China to rekindle business relationships in February or March this year following the two-week shutdown period that is common across Asia during Lunar New Year.
Her last visit to China was in December 2019. “I’m looking forward to returning and getting on with business in China.”
Australian business leaders have signalled eagerness to return to China after Foreign Minister Penny Wong and her Chinese counterpart Wang Yi recommitted to facilitating business relationships in the new year, though the federal government has yet to issue a formal invitation.
The Australia China Business Council was unfazed by the policy of pre-departure tests for travellers entering Australia from China. “After several years of not being able to travel to and from China, the recent resumption of travel has been overwhelmingly welcomed by business travellers in Australia and China,” national president David Olsson said.
A spokesperson for $62.8 billion iron ore giant Fortescue Metals said the company was watching the unfolding situation and how it may impact its long-standing relationships with customers and key partners in China.“We will continue to closely monitor the impact of COVID-19 and do not anticipate any material operational impacts at this time,” the spokesperson said.
But some in the aviation industry fear the new policy may slow the return of carriers including Qantas to the market. Qantas and Air New Zealand are yet to resume passenger services to and from China despite the relaxed restrictions.
The government confirmed to Qantas on Tuesday the new requirements would not apply to air crew. The airline did not provide further comment.
Ailevon Pacific Aviation Consulting director Matthew Findlay said the government’s announcement was “unexpected” and would limit the ability for airlines to operate with the flexibility needed to operate efficiently.
“It will be viewed as a backwards step and given the announcement seems counter to the health advice. I can’t see Australian carriers rushing to return to servicing routes to China.”
All international carriers have struggled to return to full international aircraft capacity due to the supply chain disruptions and staffing issues following the pandemic. Findlay said it was hard to imagine airlines rushing to return to Chinese routes at the expense of capacity on other routes given the uncertainty.
“Airlines operate to serve a profit but not at the expense of certainty. Routes to the US and Europe are seeing record demand and most carriers have all their aircraft deployed or on standby on existing routes,” Findlay said, adding carriers would easily adjust if there was certainty around how the policy will affect demand and operations.
New Zealand is yet to follow Australia’s lead and mandate testing international arrivals from China. If the country chooses not to follow suit Air New Zealand may be well positioned to become a dominant carrier on services from China to the region. Air New Zealand did not respond to a request for comment. The New Zealand government is due to announce the country’s position following a public health assessment on Tuesday.
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