MORE firms in Shanghai are announcing the launch of "trial operations" on Monday, a cautious but optimistic move suggesting the beginning of supply chain recovery, as authorities unveiled a slew of guidelines encouraging companies to resume operations and unblock logistics bottlenecks amid the latest Covid-19 flare-ups.

Companies in the city — mostly multinationals and leading tech giants — said they are actively preparing for anti-epidemic materials for closed-loop production, consulting with communities to call back stranded workers and mulling an across-the-board plan for nearby suppliers under government support.

But they also expected the remaining snags in the logistics chain around the Yangtze River Delta — the country's most economically dynamic region — to be gradually removed as growing flare-ups continue to clog highways and ports and stranding truck drivers, which could be the "last barrier" in preventing firms from achieving a "full recovery."

Progress

As the country's industry watchdog said last week it had drawn up a "white list" of 666 firms prioritized to resume production, the first group of businesses to resume production was mainly in the semiconductor, auto and medical supply sectors, the city's economic backbones, and foreign firms made up a large part of this batch.

Multiple foreign companies operating in Shanghai, including German chemical company BASF, US manufacturing company 3M and chemical company DuPont, vowed support for the resumption plan, saying they are exploring ways to restore capacity under government guidance.

When approached by the Global Times on Monday, the three companies also denied online rumors that suggested the three companies had rejected the work resumption plan and claimed the guidelines launched by local authorities were "unreasonable."

BASF said that they welcome the government's decision to facilitate work resumption of the key industries, adding that most of its plants had been running even during the past few weeks, though at reduced production capacity.

3M has received strong support from all levels of government in Shanghai, the firm told the Global Times on Monday. "The production of 3M medical protective masks has never stopped, and the production line has been running in an orderly manner during the past weeks."

With the support of the government, 3M said it has started to formulate a comprehensive plan for a full resumption of work and production.

DuPont told the Global Times that it will resume production once government approval is obtained and its staff are allowed to leave their communities to return to the factory.

German high-tech firm Merck also told Global Times on Monday that its plant in Jinqiao, Pudong New Area, which produces semiconductor material and display material, has been operating at partial capacity since early April with closed-loop management over some of its employees.

"The current outbreak has not changed our original intention and direction. Our expansion plans have been slightly delayed... and we will make steady progress once the epidemic recovers," Allan Gabor, president of Merck China and managing director of Electronics China, said in a statement sent to the Global Times on Monday.

As initial work has already kicked off, most companies are anticipating a full recovery, but as cases are still rising, striking a workable balance between production and epidemic control is a tough and "innovative task" that needs time to be tested.

"We are being asked to conduct a 'pressure test' during the two days — to test whether we can operate smoothly in the closed-loop management, whether our staff can commute between the workplace and their communities, and whether logistics can be ensured to transport materials," a staff member at a Shanghai-based auto parts supplier told the Global Times on Monday on condition of anonymity.

The person said the firm is being asked to report any problems encountered during the test to headquarters, and suppliers that "pass the test" can resume production as soon as possible.

"But production efficiency under such a pattern is definitely not as good as when they go to work normally," the person noted.

Another company that engages in the auto parts business told the Global Times on Monday that picking up staff from stranded communities is a tough job, as different communities, which are now still under high epidemic control alert, have different rules and strictly control personnel flows.

"We will pick up staff directly from their homes to the workplace so that they do not come into contact with other people on the way to ensure their safety and health, even if that means more costs," the person said, who also asked to remain anonymous.

For those not included in the work resumption white list, they will still have to wait for a complete recovery of business.

FA Software, a Shanghai-based semiconductor software solutions supplier, told the Global Times that its employees in Shanghai are still working from home as the company is not yet included in the white list.

However, employees engaged in projects in other parts of the country are working as usual and are not affected by the outbreak in Shanghai, according to the company.

Regional pain

Economists pointed out that restarting work in Shanghai is particularly important as the ongoing Omicron wave is currently dealing a heavy blow to China's most developed regions from Shanghai to the whole Yangtze River Delta, where a cluster of the country's most high-end manufacturing industries are located.

Under the current strict epidemic control measures, the transportation system around Shanghai is not functioning smoothly, which affects the two-way operation of supply chains and shipments in the East China industrial belt, leading to production reductions and work stoppages.

"Resumption of production for Shanghai also means rising orders for us," Zhang Hong, a panel supplier based in Kunshan, a city in East China's Jiangsu Province, neighboring Shanghai, told the Global Times on Monday.

Zhang said, in Kunshan, there are a large number of panel and printed circuit board enterprises supplying semiconductors in Shanghai. But Zhang said his firm has been unable to transport any materials to Shanghai customers since mid-April due to logistics blockage.

Statistics from the Shanghai Integrated Circuit Industry Association showed that in 2021, the Shanghai integrated circuit industry saw sales revenue of 257.885 billion yuan ($40.51 billion), more than a quarter of the country's total.

"Many truck drivers are still required to show local travel passes and 24-hour nucleic test results, while the epidemic prevention and logistics policies often vary from region to region, and those who have been to Shanghai will not be allowed to come back to town," Zhang said.

Another auto parts supplier in Nantong, Jiangsu Province, mentioned the same concerns over cross-city logistics problems, saying it is the biggest barrier to restoring supply chains in the region.

Chinese government agencies have been doubling down on efforts to unclog transport and logistics, the "arteries" of the world's second-largest economy, over the past week.

The latest move includes a call from Chinese Vice Premier Liu He on Monday, underlining that China should issue a sufficient amount of national unified travel passes and not restrict transportation using the excuse of waiting for nucleic test results.

Liu stressed that the nucleic acid tests with a sampling interval of over 48 hours should be recognized across the country, and that logistics personnel should not have transport restrictions placed on them because they are waiting for test results.