Volkswagen AG and Foxconn Technology Group are keeping their workers on-site in their factories in Chengdu after the Chinese metropolis locked down its 21 million residents to contain a Covid-19 outbreak.
(Bloomberg) — Volkswagen AG and Foxconn Technology Group are keeping their workers on-site in their factories in Chengdu after the Chinese metropolis locked down its 21 million residents to contain a Covid-19 outbreak.
The German automaker’s factory, jointly operated with its local partner China FAW Group Co., entered a so-called “closed loop system” Thursday evening to maintain production, a company representative said on the phone on Friday, without elaborating. Foxconn, the largest assembler of Apple Inc. devices, is also adopting the method at its facility that makes iPads there, according to a person familiar with the decision.
First used during the Beijing Winter Olympics as a way of keeping athletes and support staff separate from the wider population, closed loop, or factory bubble, is a China invention used to keep its economy running amid punishing efforts to stamp out Covid’s spread. Closed loops typically require workers to travel from on-site accommodation to the factory and back, strictly avoiding contacts with outsiders, and be tested regularly for Covid. Companies such as Tesla Inc. have even kept their workers sleeping on the floor during the Shanghai lockdown earlier this year.
While the loops have allowed some supply chains to continue operating amid lockdowns, they have also created problems of their own, like workers revolting over poor living and working conditions. The system has also been unable to prevent widespread disruption to global supply chains from the strictures of Covid Zero.
Massimo Bagnasco, chair of the southwest China chapter, European Union Chamber of Commerce in China, said government guidance is that a company can operate in a closed loop system if it’s considered important to the community. In addition, businesses would have to satisfy local authorities that they can successfully manage the loop in a way that wouldn’t pose a threat to public health.
“Yesterday was kind of a messy time,” he said, adding a large majority of his members won’t be able to operate under the loop system as they may not belong to a category that’s viewed as fundamental to daily life. “Everyone was trying to understand what they could do from an operational point of view of their business, as well from the individual point of view.”
Chengdu, the capital of Sichuan province, is the biggest city to shut down since Shanghai’s bruising two-month lockdown starting end-March. It also functions as a manufacturing hub in southwestern China for companies including Geely Automobile Holdings Ltd. and Toyota Motor Corp.
Volvo Car AB’s Sichuan plant, now under the parent group of Geely, has suspended production due to the lockdown. The parent company said it would closely monitor the situation. In the meantime, Hitachi Ltd.’s two Chengdu plants that manufacture elevators and escalators are operating at reduced rates due to an order from authorities, Ryuhei Tanaka, a spokesman for the Japanese company said by phone.
The entire city of Chengdu will undergo four days of mass testing starting Thursday evening. The extent of the economic dislocation depends on the duration of the lockdown, which city officials haven’t yet disclosed. China’s economy is bracing for more pain as the city, which has been just hit by severe drought and floods in recent weeks, makes up 1.7% of China’s national gross domestic product.
(Updates with EU business chamber official’s comment in fourth paragraph. An earlier version of the story was corrected to remove reference to Tanaka Co. in fifth paragraph.)
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