Floods in China Threaten Supply Chains for Critical Goods

22 July 2020 Mervyn Piesse, Research Manager, Global Food and Water Crises Research Programme

Background

Water levels on many Chinese rivers have been unusually high this summer, due to higher than average rainfall. According to media reports, rivers have risen beyond the levels seen in 1998, when the largest floods to that point killed more than 4,000 people. The heavy rain is most likely due to warmer than normal sea surface temperatures in the Indian Ocean. Infrastructure in the Yangtze River basin has come under increased pressure due to the rapid rise in water levels. A dam on one of its tributaries in Anhui province was destroyed with explosives, after water levels rose to dangerous levels. Reservoirs on the Huai River, which flows through major agricultural and manufacturing centres in eastern China, have exceeded warning levels by almost seven metres. The Water Resources Ministry stated that ‘Floods are occurring at the same time in the Yangtze River, Huai River and Tai Lake … The flood prevention situation is very severe’. Perhaps of greater concern for the world, however, is the threat of more disruption to the global supply of personal protective equipment, which is vital for the ongoing battle against Covid-19.

Comment

The floods in central China are likely to disrupt supply chains of personal protective equipment (PPE). Wuhan, which was the epicentre of the first Chinese outbreak of Covid-19, has experienced severe floods in recent weeks. The largest Chinese manufacturer of non-woven fabrics (which are an integral part of many PPE products), is located in Xiantao, which is about 100 kilometres to the west of Wuhan.

Wuhan is also downriver from the large Three Gorges Dam. The water level in the dam’s reservoir has risen more than ten metres above its warning level and Beijing admitted that the structure has ‘deformed slightly,’ but remains safe. The operators of the dam maintain that it plays a vital role in controlling the flow of the Yangtze and reduces flooding downstream. Residents in Wuhan and the provinces of Anhui, Jiangxi and Zhejiang received a red alert, the highest level on a four-tier weather warning system. At least 44-million people have been evacuated as flood waters threaten to submerge their homes.

With almost half of the global supply of face shields, protective gowns, gloves and goggles originating in China, the world depends on its supply chains remaining operative. The United States is likely to be worst affected by any disruption in the supply of PPE, due to new daily cases of the virus remaining high. Even as late as 31 May, almost half of the doctors and nurses surveyed by the American Nurses Association claimed that they were still experiencing shortages of PPE. The president of a US medical supply distributer told Reuters that the floods are:

… creating another major roadblock here in terms of PPE getting into the United States – it is the worst of times for it to happen but that’s what we’re dealing with right now … We cannot get product out for over a week, which is a very long time in our business.

Delays are expected to last for at least another two or three weeks. India, which rapidly shifted part of its manufacturing industry to producing PPE, has become the second-largest manufacturer. At first, it concentrated on ensuring domestic supplies, but it is moving towards producing a monthly surplus of almost five million PPE suits, all of which will be exported. Another supply chain disruption in China is likely to hasten a shift in manufacturing out of the country.

The PPE industry is heavily subsidised in China, however, with factory owners receiving cheap land and loans. PPE manufacturers located outside of China still rely on machinery that can often only be purchased from Chinese companies.

State subsidies and a reliance on machinery from China make it difficult for manufacturers located in other countries to compete. The importance of maintaining the supply of critical items, however, is likely to further incentivise countries to reduce their reliance on Chinese manufacturing and diversify their supply chains.

Any opinions or views expressed in this paper are those of the individual author, unless stated to be those of Future Directions International.

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