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As was to be expected, Beijing’s zero-covid strategy also impairs the economy in the face of rising Covid cases. Companies like Bosch already have to suspend production at some of their sites to comply with the Chinese government’s strict regulations.
One contingency plan that more and more companies currently resort to is the so-called “closed loop”: Instead of working from home, employees stay on company premises. Those who cannot leave can’t bring in a virus, so the simple calculation goes – and the Winter Olympics are used as a prime example. But it’s not quite that simple, explains Christiane Kuehl. A closed loop only works if companies have access to sufficient preliminary products. And that is rarely the case in times of just-in-time production and meticulously timed deliveries.
New strategies are also needed for the Chinese car market. One in three car dealers is currently posting losses. An increase of online sales is expected to restart growth. EV customers in particular may be more willing to order their car on the Internet, writes Christian Domke-Seidel. However, there is still a long way to go before business runs smoothly. At present, just five percent of all new car sales in China are made over the Internet. Companies like Tesla and NIO, however, are already well ahead of the curve. This also inspires German manufacturers such as VW, BMW and Mercedes to set up digital showrooms.
Uncertainties in the closed loop
The so-called “closed-loop” has become the saving grace for many companies in China. Faced with the threat of lockdowns across the country, they are setting up a closed-loop in which employees work, live, and sleep on specially purchased beds in the office for several days isolated from the rest of society. This is intended to keep their factories free of viruses and production running as smoothly as possible.
Automotive supplier Bosch, for example, announced on Tuesday that one auto parts plant each in Shanghai and the neighboring city of Taicang were currently operating in a closed-loop. However, the company also said it had to halt production at a Bosch thermotechnology plant in Shanghai and at an automotive components site in closed-off Changchun. “We are currently seeing temporary effects on logistics and supply chain sourcing,” Bosch said in the statement. “In this situation, we are doing everything we can to maintain the supply chains as much as possible and to serve the demands of our customers.”
Bosch thus also identifies a fundamental problem of the closed-loop: It only works as long as authorities permit continued production. In addition, companies must either have enough preliminary products in stock – or still be supplied with them.