China’s “closed-loop” system was designed to keep the world’s factories running during the coronavirus outbreak.
But the system deployed in factories that make Apple devices and Tesla cars is quickly becoming unsustainable as supply chains are choked and foreign companies risk reputational damage through human rights abuses against marginalized workers.
Covid-19 cases have flared up again in China over the past month, bringing the focus back to Xi Jinping’s controversial zero-Covid policy, which includes immediate lockdowns, quarantines, mass testing and fastidious contact tracing.
The closed loop system was used to accommodate athletes, officials and media at the Beijing Winter Olympics this year. In theory, the system protects workers from contracting the virus by isolating them from the outside world, thus ensuring the stability of factory production.
“I don’t know how much longer I can hold out [in the closed loop]. The accommodation and food at the factory is terrible,” said a worker surnamed Xiao in Jiangsu, a province north of Shanghai, “I’m a human, not a machine.”
Workers fled an Apple-maker Foxconn factory after complaining about dwindling food supplies © Hangpai Xingyang/AP
After an outbreak at Apple-maker Foxconn’s 200,000-person Zhengzhou factory complex, employees complaining about shortages of food and medical supplies escaped by climbing fences.
On Wednesday, the local government ordered a week-long lockdown of the area and threatened further disruptions to production of Apple’s iPhones.
The renewed strain on Chinese manufacturing, which analysts warn will spill over into global supply chains, comes just weeks after zero-Covid policies were strongly reiterated by health officials and official state media.
Ma Xiaowei, a senior official with the National Health Commission, reiterated Wednesday that China will “resolutely” continue to enforce the zero-Covid policy. The statement from Beijing’s top health authority followed a rumor on Chinese social media that a policy change was imminent.
Ernan Cui, an analyst at Beijing-based research group Gavekal, pointed out that more than three-quarters of major Chinese cities have been reporting new cases over the past month, at a record pace of more than 100 cities a day.
“The growing number of severe lockdowns also increases the likelihood of serious disruptions to manufacturing activity and supply chains,” she said in a research paper.
“With no clear end in sight to the country’s tight containment policies, tighter lockdowns and further supply-side disruptions appear inevitable in the coming months.”
Alicia Garcia Herrero, chief economist for Asia-Pacific at Natixis, warned that the closed system was “unsustainable” given the risks from worker abuse and the likelihood of further disruption.
“You can do that for a month or two months or three months, but once it becomes the norm it’s just so inefficient for a company,” she said, adding that there would be increasing “reputational risks” for foreign companies, they produce in China.
Hardest hit is China’s migrant population of more than 400 million, many of whom work in manufacturing and related services far from their homes and families.
“I couldn’t see my wife and children because of the circulatory system, even though they live not far away. I miss her so much,” said a 35-year-old worker surnamed Zhang in Jiangsu.
After living behind closed doors for most of the year with low wages, Zhang has decided to quit his job and return to his hometown before the Chinese New Year in early 2023.
Since the Omicron variant coronavirus first spread in China in late 2021, labor rights groups have pointed to numerous instances of violations and crackdowns by authorities.
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The episode is feared to be repeated at Quanta Computer’s Shanghai campus in May, when workers clashed with security guards in hazmat suits as they attempted to be locked inside over Covid-19 cases. Quanta produces electronic components for Apple and Elon Musk’s Tesla.
Yaqiu Wang, a senior China researcher at Human Rights Watch, said the use of the rigid closed-loop system is just the latest plague in a long history of exploitation in China by local and foreign groups.
“The company is balancing, ‘how do I fulfill orders placed by Apple’ and ‘how do I ensure I comply with the government’s Covid guideline, as long as I’m not penalized by the government,'” she said. “Workers’ rights are not what they have in mind.”
Cui from Gavekal also noted that before the Foxconn outbreak, official reporting from Zhengzhou showed only a handful of new cases every day.
“This disparity highlights an even more serious problem: the likelihood that many local governments have recently avoided reporting cases or imposing restrictions to show a positive public health situation,” she said.
“The risk is that as a result, more cities will find themselves in the Shanghai situation at the end of March: initially tolerating low case numbers to avoid disruption, only to find the virus spiraling out of control.”