Silicon supply chain disruptions could worsen as China announces new lockdown in Shenzhen

Foxconn said Sunday it was suspending operations in the city in response to a government-imposed lockdown

Tech companies are preparing for yet another round of potentially crippling supply chain disruptions, after China's announcement of a lockdown in the city of Shenzhen on Sunday.

Shenzhen is a major tech hub in China, with a population of around 18 million. The city borders Hong Kong and is often referred to as China's Silicon Valley. It is also home to Huawei's China headquarters, as well as hosting a vital production plant for Foxconn, the primary Chinese manufacturer of the iPhone and other Apple products.

On Sunday, Shenzhen underwent total lockdown, meaning that all non-essential workers must remain at home, although essential services such as medical institutions, pharmacies and express delivery services are permitted to continue operating.

The lockdown is expected to conclude on March 20th, although the administration may choose to extend the deadline even further into the month.

Over the past two years, the Chinese government has pursued a zero-Covid policy, which was marked by quick and harsh lockdowns of whole cities.

On Sunday, 60 new cases of Covid were recorded in Shenzhen, after which authorities decided to implement a complete lockdown in the city.

The new lockdown threatens to worsen supply chain disruptions, amid global semiconductor shortages and Russia's ongoing conflict with Ukraine, according to analysts.

As reported by Bloomberg, Foxconn announced on Sunday that it was suspending operations in Shenzhen in response to a government-imposed lockdown on the city. To mitigate the effect of the disruption, the company said it was stopping operations at the two campuses and reallocating production to other sites.

The new disruptions come at a particularly fraught period for manufacturing companies, which are already dealing with increased raw material and transportation costs, as well as longer delivery delays and labour shortages.

In the United States, the Biden administration has taken a number of steps to attempt to reduce bottlenecks both at home and overseas, including allocating $17 billion to improve efficiency at American ports.

Key ports in the US are now processing more cargo than ever before and clearing their backlogs of containers.

Meanwhile, companies in Europe are suffering yet more strain on supply chains as a result of the Ukraine conflict that has led to growing shortages of key components. The new snags represent a fresh risk to Europe's economic recovery, possibly extending existing bottlenecks that were not anticipated to be resolved until next year in certain industries.

According to a JPMorgan analysis, Asia-Europe routes have been hurt the worst by issues such as severe port congestion and cargo disruption as a result of Russian airspace closure.