According to The Economist Intelligence Unit, China's decision to maintain Covid controls is forcing companies to look to factories outside the country.
Nick Marro, global trade leader at The Economist Intelligence Unit, said that companies are moving ahead with their supply chain diversification plans.
Decision-making is affected if things can't get done. Companies are not expected to leave China. We just expect them to expand their footprint.
The country was able to resume work because of Beijing's strict Covid controls. Since Shanghai was locked down for two months earlier this year Beijing has increased virus testing requirements and broad controls.
Under a closed-loop system, authorities have tried to keep important factories in production, in which employees live and work at the same site, or at most only travel to and from work.
In the last few weeks, there has been a Covid outbreak at an Apple supplier.
This is noteworthy because it shows a breakdown in the closed-loop system.
Some workers at the factory forced their way out of the control room. Municipal authorities said they would help workers leave the factory to return to their hometowns.
CNBC did not get a response from Foxconn.
Patrick Chen, head of research for CLSA in Taiwan, said that cases like this will happen again and again if the Covid zero policy isn't changed. He said he doesn't expect much change in the policy.
There will certainly be some negative impact to the employee morale or the overall quality in the production yield, but I don't see much of anIncremental Cost associated with these closed-loop management or production.
Workers at factories are usually paid a monthly salary of about $1,000.
Weak demand for the phone means production disruptions have less of an impact.
According to Counterpoint Research, the global smartphones market declined in the third quarter from a year ago.
The American Chamber of Commerce in Shanghai found that U.S. companies have cut their investment in China more than last year.
At the end of the day, it’s that uncertainty which is the biggest problem for investors.
34% of respondents said they were increasing investment in the country. The figure was down from a year ago.
The rising cost of running a large operation in China has prompted tech companies to move manufacturing for less complex products out of the country.
It is difficult for Apple to find another 200,000 to 300,000 workers to make the iPhone outside of China.
It was announced in September that Apple would be manufacturing its newest model in India for the first time. Only 5% of Apple's global production will move to India this year, according to analysts from JP Morgan.
In the last few weeks, China has announced measures to encourage more foreign investment in manufacturing. When controlling Covid outbreak remains the priority, the level of implementation is not clear.
When foreign businesses say they are committed to the Chinese market, we can take them at face value. They are waiting for signals that the macroeconomic environment will get better.
He said that the biggest problem was that the signals weren't coming. Uncertainty is the biggest problem for investors.
CNBC had a contributor to the report.
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