China Pollution Inspections Disrupting Supply Chains

Via bna.com

Factory operations suspended under sweeping environmental inspections are affecting supply chains in China ranging from chemicals to electronics to textiles, creating a crunch at its ports and uncertain timelines for deliveries, sources told Bloomberg BNA.

The situation could linger for months as authorities near major urban areas around Beijing, Shanghai and South China’s Pearl River Delta push to meet cleaner air quality goals laid out in a national air pollution action plan launched in late 2013, which expires at the end of the year.

“Tens of thousands” of factories have been affected in and near the major urban centers, with impacts ranging from “complete factory shutdowns [to] temporary closures” with unknown timeframes for resolution, Gary Huang, who sources products in China for Amazon.com sellers and is head of the supply chain committee at American Chamber of Commerce in Shanghai, told Bloomberg BNA.

Inspection campaigns are permeating “the various links of the supply chain including component suppliers, forcing companies to modify their products or remove certain components from their production,” Huang said.

The European Union Chamber of Commerce in China has scheduled a working group meeting Sept. 27 in Beijing to discuss the situation.

“This has impacted our supply chain down to the second and deeper tiers,” a representative of a private U.S. company—who did not want his name or company identified—told Bloomberg BNA. “Most companies have less than a week in cash, so they don’t carry much inventory. When the inventory is gone, the delays get worse.”

The company’s main factory was shut down for environmental audits for nearly two weeks, causing major business disruptions, the representative said.

The U.S.-China Business Council said it was providing companies with research on the environmental inspection situation, but otherwise declined to comment.

At the 19th Communist Party Congress, which begins Oct. 18 in Beijing, officials want to show President Xi Jinping they are serious about strengthening environmental protection in line with one of his high-profile policies of creating an “ecological civilization.”

The central government launched a fourth round of environmental inspections in early August in Jilin, Zhejiang, Shandong, Hainan, Sichuan, Qinghai and the Tibet and Xinjiang autonomous regions, to round out a nationwide campaign started in July 2016.

The Ministry of Environmental Protection said Sept. 5 that more than 5,600 companies had already been punished in the fourth round of inspections, totaling 280 million yuan in fines ($43 million).

“In the past few weeks there has been more aggressive activity,” Michael D. Crotty, president of Golden Pacific Fashion & Design Co., Ltd. told, Bloomberg BNA Sept. 6. “We have a large project we are working on and shipment is due, and we are having a hard time getting to a ship date.”

Crotty said the environmental inspections are significantly impacting his home textile business supply chain mostly located in Zhejiang—which is part of the current central government inspection campaign—and Jiangsu provinces, with “thousands upon thousands” of dye and print mills closed or forced to work shortened weeks. “Many are not sure when they can reopen,” he said. “Hundreds of smaller mills will likely never reopen.”

Delays could occur in filling orders, manufacturing products, and in shipping as the holidays approach in the U.S. and Europe.

“If you are looking ahead to the fourth quarter, with the holidays, and then Chinese New Year coming, you’ve got a nightmare,” Crotty said. “You are going to have logjams in [Los Angeles], and jams getting boats here.”

To contact the reporter on this story: Michael Standaert in Shenzhen, China at correspondents@bna.com

To contact the editor responsible for this story: Rachael Daigle at rdaigle@bna.com

Copyright © 2017 The Bureau of National Affairs, Inc. All Rights Reserved.

 

 

 

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