Today, many industries perform less efficiently due to the pandemic. The global chemical industry is no different, and China being a major exporter, has seen it all. Chemical production and export from China have dropped, but the pandemic is not solely to blame.
Indeed, anti-COVID measures cause decline, but other factors like environmental regulations play a significant role. For instance, a province like Jiangsu has seen more than 50% closure of companies over the past four years. China is also working on moving chemical production to chemical parks, meaning more industries will close down.
Such factors affect China’s supply chain management, especially for chemical industries. But what is the major cause of China’s supply chain issues?
The Issues Affecting China’s Supply Chain for Chemical Production
The past few years have been difficult for China as a major exporter of chemicals. Some changes in the chemical industry are permanent, while others are temporary. Still, they affect the global chemical industry.
These issues include:
- The COVID-19 Pandemic
The pandemic has affected China’s supply chain management in many ways, including:
- Logistics-related delays
- Production input delays and shortages
- Price increases
Unfortunately, lockdowns in various parts of the country don’t improve the situation. Also, policies and shutdowns in various industrial hubs in China are causing uncertainty in chemical importing regions.
- Increased Protectionism
Due to the many changes occurring in the industry, policies are in place to encourage the establishment of domestic producers. Moreover, cross-border products are declining, and China is redefining and expanding sensitive technologies and industries.
- Wage Inflation
Increased wages in lower-cost countries like China affect the supply chain. Although wage inflation is present in Europe and the United States, China’s industries are experiencing a surge in labor costs. The situation will not change any time soon, leading to the relocation of many industries from China.
Such a significant change directly affects the global chemical industry due to logistics-related issues and production-related differences.
- Reduced Harbor Capacity
The Chinese government reported a slight recovery in the number of items that could go through the Shanghai port in May 2022. Unfortunately, the difference was barely noticeable, proving the severity of the situation. Moreover, in other regions of China, the waiting time for export containers continues to increase.
So, any importers of chemical products from China now have to wait long periods due to the shortage of containers.
- Reduced Trucking Capacity
In the past four months, Shanghai has lost approximately 45% of its trucking capacity. Unfortunately, truck drivers from severely affected areas of China cannot access Shanghai thanks to the pandemic.
Therefore, transporting chemical products from producers to the harbor is nearly impossible due to this disruption in the supply chain.
- Decentralization of Chemical Production
Chemical producing regions for export consisted of:
- The Greater Shanghai area
However, more local regions of China also have industries for chemical production. Today, these regions have local restrictions that make it harder for foreign nations to import from China. Unlike state-owned enterprises, private and province-owned companies create disruptions in the supply chain. Thus, the global exportation of chemical products becomes more difficult. Although China is not the number one exporter of chemical products, issues within its borders affect other regions. As a result, there is a breakdown in chemical supply, leading nations to look for alternative sources.