Market Intelligence
January 18, 2023

Understanding the Impact of Chinese New Year on the Global Supply Chain image

When envisioning Chinese New Year, most people picture bright fireworks, red envelopes with gifts of money, and delicious meals shared with family.  

What most people do not realize, however, is that the time-honored celebration of Lunar New Year has profound consequences for the global supply chain, as China is the world’s largest manufacturing hub. About 36% of the world’s electronics — such as smartphones, computers, cloud servers, and telecom infrastructure — are produced in China, making it, in essence, the center of gravity for the global supply chain.  

This is why the Spring Festival, which marks a week of exodus as people leave China’s city center to visit their hometowns, has far-reaching effects, pausing the electronic industry in a state of limbo until production resumes.   

This year, the Spring Festival will take place from January 22nd – January 29th, and the electronic component industry is bracing itself for the yearly lull in production, changes to personnel, and possible fluctuations in quality. That said, just because China goes on hiatus, your supply chain does not have to be disturbed. 

What Is Chinese New Year? 

Folk experts say that the traditional Chinese New Year has a history dating back more than 4,000 years to the Yao and Shun Period. Otherwise known as Lunar New Year, the holiday falls between late January and early February each year. The exact dates shift every year because the holiday is based on the lunar calendar instead of the solar Gregorian calendar. Festivities last for 15 days, beginning with January’s first new moon and lasting until the next full moon. 

While Chinese New Year has multiple origin stories, the most common one tells the story of Nian. Nian was a monster that would attack citizens and livestock the night of each new year. To prevent the attacks, villagers would leave offerings of food on their doorsteps. Over time, they learned that Nian feared loud noises and the color red, so these were incorporated into the yearly ritual. Crackling bamboo and firecrackers were lit to keep the monster at bay, and red lanterns and red scrolls decorated people’s homes. This celebration became a fixture of China’s culture during the Han Dynasty, which lasted from 202 BC–220 AD. 

It wasn’t until the Wei and Jin dynasties of 220–420 AD that the celebration incorporated rituals like families cleaning their homes in preparation for the new year. Additionally, family time would come to include sharing dinner and staying up late the night before New Year's Day. 

By the time of the Tang, Song and Qing dynasties, the celebrations resembled what we know them as today. The newer traditions added eating dumplings and seeing dragon or lion dances, plus lantern shows that often take place during the Temple Fair. 

However, there was a period where China abolished Chinese New Year. In 1912 the government embraced the Gregorian Calendar, which marks January 1st as the beginning of the new year. This only lasted until 1949 when Chinese New Year returned and was rechristened the Spring Festival. This festival is a nationwide public holiday that requires all businesses to pause so that citizens can travel. 

Each year in the lunar calendar, the year is named after an animal, derived from Chinese zodiac folklore. This year, the zodiac animal is the Rabbit. In Chinese culture, the Rabbit is known to be the luckiest of all the 12 animals. It symbolizes longevity, elegance and prosperity. 

Why Does This Impact the Electronic Component Industry? 

The Year of the Rabbit marks the return of the festive fair after a two-year hiatus due to the COVID-19 pandemic. Because of the long pause, it is expected that the number of people traveling this year will be record breaking, which comes as no surprise since Chinese New Year is the largest human migration in the world. In 2019, approximately 415 million people made pilgrimages to their family homes. 

The impact of this holiday on China’s manufacturing and shipping industries is substantial, as it is mandatory that businesses shut down for the Spring Festival. One of the biggest effects on the electronic component industry is decreased quality. As companies prepare for the seven-day pause, there can be a rush to complete orders; as a result, corners may be cut and important steps in quality assurance missed. 

When work does resume, it can sometimes take up to a month to return to pre-festival levels of production. As many as one-third of workers may use the pause as an opportunity to leave their jobs or opt to stay in their hometowns instead of returning to the cities. This can translate into a quality issue as well, as new hires take time to onboard. 

In addition, shipping costs and order lead times often fluctuate in the weeks leading up to and following the holiday. Prior to the break, demand is heightened and there is a rush to ship, as customers try to take delivery of components quickly. After the holiday, workers return to an extensive backlog of orders. As mentioned, those workers may be new and not nearly as trained as their more experienced predecessors. 

How Do I Prepare My Supply Chain? 

Planning ahead is the best way to prepare your supply chain for Chinese New Year. Businesses should pay extra attention to demand, project launch timelines and inventory levels leading up to the Spring Festival. If possible, you can avoid the heightened prices of shipping by waiting until after Chinese citizens return to the workplace.  

However, if supply levels are running low, the best option is to work with strategic partners with worldwide locations for your sourcing and testing needs. Outside of Chinse New Year, injecting diversity into your supply chain is one of the best ways to safeguard your business from any additional disruptions that may come throughout the year.  

Learn more about Fusion Worldwide’s quality assurance process and Prosemi facility. 

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