Why China’s Economy Faces a Perilous Road to Recovery

Many European manufacturers in China have been forced to operate with about half their usual staff for two to three weeks, affecting output somewhat, said Klaus Zenkel, the chairman of the chamber’s South China chapter. As a precaution against lockdowns, many companies had accumulated spare parts in warehouses before the Covid wave and have relied on those to keep running.

But to save on costs, a few small suppliers of specific components have stopped operations early for the Lunar New Year holiday, which starts on Jan. 21. “Everyone managed a way to continue somehow, to keep the damage at a minimum,” Mr. Zenkel said.

The damage that “zero Covid” inflicted on China’s once-unbeatable attractiveness as a manufacturing hub could be hard to repair.

Lockdowns and closed borders slowed or disrupted deliveries of goods and prevented many companies from sending buyers to factories. Some global retailers, seeing risk in overreliance on China, have turned instead to other countries for supplies. Walmart, for example, plans to ramp up imports from India to $10 billion a year by 2027.

Even Chinese exporters are trying to diversify.

In Yangjiang, Velong Enterprises, a Chinese manufacturer of knives, grilling thermometers and other kitchenware for Walmart, Ikea, Target, Carrefour and other retailers, is expanding its operations in Cambodia, Vietnam and India. It has shrunk its work force in Yangjiang from 1,700 to 1,200 through attrition and is considering potential factory sites from Mexico to Turkey, said Jacob Rothman, a co-founder and co-chief executive.

Companies like Velong find some savings when they venture out. The company pays workers in Cambodia half as much as its workers in Yangjiang.