This is in response to the worst COVID-19 pandemic outbreaks since two years ago.
China banned people from leaving northeastern-hit coronavirus-hit provinces this week and mobilized military reserves Monday to combat the rapidly-spreading variant BA.2 that fueled an increase in infections.
Stock prices in China, Hong Kong and Hong Kong fell for the second day after the shutdown Monday of Shenzhen. This was a tech and financial hub that is adjacent to Hong Kong in South and Changchun in the Northeast. The bus service to Shanghai (China’s largest and most important city) was stopped.
China has a lower number of cases than other countries and Hong Kong. Authorities are using a “zero tolerance strategy” to try and keep the virus from entering the country. To find all infected persons, it has temporarily closed major cities. China’s new restrictions are coming at a time when global economic pressures include Russia’s war against Ukraine, rising oil prices and weak consumer demand.
Carl B. Weinberg, High-Frequency Economics, stated that “We cannot think of any risk to the global economic, except nuclear war, that is greater that the risk of a COVID epidemic in China that shuts down industrial production.” “Uncountable manufacturing supply chain passes through China.”
Ports are at risk
Economists believe that smartphone manufacturers and other industries are able to use factories and suppliers from other parts of China for the time being. A bigger threat is if businesses are disrupted in ports like Shanghai, Shenzhen or Ningbo.
The U.S. states that “the stateside industries that will most be affected” are those that rely on Chinese products and inputs, such as consumer electronics and automobile components. Thomas Goldsby, an expert in logistics at the University of Tennessee’s Master’s of Science in Supply Chain Management online program, stated via email. For months, the demand for automobiles, games systems, and mobile devices has been steady. While seasonal goods may be able to weather the storm, retailers and producers of more technologically advanced products are still in trouble.
China’s ports connect factories that make most of the world’s smartphones and computers with overseas components suppliers and customers. Last year, a one-month delay at Shenzhen’s Yantian Port caused a backlog in shipping containers that sent shockwaves through global supply chain.
Iris Pang (chief China economist at ING) stated that the risk is whether COVID can be found at Yantian Port. “If the port is suspended, it will impact a lot electronic imports and exports.”
Although there was no indication of major disruptions, port operators announced restrictions on face-toface contact with shippers or sailors.
Shanghai Port Agency closed the windows for customers to submit documents, and stated that this function would be moved online. It did not indicate whether cargo-handling and other operations would be affected.
North of Shanghai, the port of Lianyungang announced that foreign sailors were prohibited from leaving ships or using it to change crews.
Cross-border freight service was suspended at Shenzhen’s Liantang crossing to Hong Kong. The Man Kam To crossing will only be used to handle fresh and live food in order to ensure Hong Kong has adequate supplies.
“Significant risks”
Rajiv Biswas (chief Asia economist at IHS Markit), stated in an email that “the lockdown of Shenzhen poses significant risks of supply chains disruptions.” If Shanghai authorities also implement a lockdown, the risk of global disruptions “would increase.”
Tuesday’s new cases on the Chinese mainland surpassed 3500. Nearly three quarters of the cases were reported in Jilin, Changchun’s province. Hong Kong had 26,908 cases Monday, according to separate reports.
Customers were reassured by the Yantian Port that operations were normal. The Yantian Port posted a statement on social media, promising to make every effort to ensure that the ‘lifeline’ for port supply is stable and smooth.
China, the country where the pandemic began in late 2019, in Wuhan central, was the first major economy that recovered after Beijing shut down shops, factories and offices to control the disease.
The growth target for the ruling Communist Party this year is 5.5%. This would mean that the growth target of the ruling Communist Party is 5.5%. It would be much lower than last year’s 8.1%. Forecasters think it is too aggressive considering that construction, which provides millions of jobs, has been hit hard by the crackdown on real estate debt.
Leaders have promised tax cuts to entrepreneurs and increased spending on public works. This could boost consumer spending and protect the economy from a slowdown of manufacturing.
Beijing’s latest pandemic strategy is being challenged by the new infection wave, which was caused by a fast-spreading virus dubbed “stealth micron”.
All Shenzhen-Changchun businesses, except those that provide food, fuel or other necessities, were ordered to close. All bus and subway services were stopped. Millions of people were asked to have their virus tested. Anyone who wishes to enter Shanghai, China, which is home to 24 million residents, must undergo virus testing.
On Tuesday, Shandong, an eastern province with a large population, had 106 new cases. Guangdong, located in the south of Shenzhen, reported 48. Shanghai had nine, while Beijing had six. Changchun’s home is in Jilin province. Residents are prohibited from leaving the province or traveling between its cities.
Goldsby stated that Chinese operations will continue to cause disruptions and shutdowns. As long as they maintain a zero tolerance policy, Goldsby predicted. It is unrealistic to shut down operations for a single case, especially when you consider that different viruses can be contracted over time.
Broader lockdowns?
Volkswagen, Toyota and Foxconn, as well as smaller companies such as BYD Auto and Apple Inc. announced that they would suspend production at certain factories. Other companies affected include Huawei Technologies Ltd., Apple Inc. General Motors Co., and BYD Auto, a telecom equipment manufacturer.
Bank of America economists stated in a report that “the risk of broader locksdowns is increasing.”
Volkswagen AG announced that the Changchun factories of the VW and Audi brands were closed from Monday to Wednesday.
Toyota Motor Co. announced Monday that operations at its Changchun plant that produces RAV4 and Harrier SUVs was suspended.
Some of China’s largest companies are located in Shenzhen. It is home to Huawei, BYD Auto and Ping An Insurance Co. of China. Tencent Holding operates the WeChat messaging system. Foxconn, a Taiwanese company that assembles Apple iPhones, has its China headquarters in Shenzhen.
Foxconn has moved the majority of its production out of Shenzhen, although it still assembles some tablets and smartphones in Shenzhen. Other manufacturers have also moved to cheaper parts of China and abroad. Research and development, finance, and marketing are all maintained in Shenzhen. These functions can be performed remotely by employees.
“Manufacturing takes place in other countries, so it’s unlikely that China will be affected by COVID. Pang, from ING, said that phones are one example.
Authorities appear to be experimenting with a “dynamic “zero COVID” policy that still aims at keeping the virus out but uses “targeted locksdowns” in an effort to lower the economic and social costs, according to David Chao from Invesco.
Chao stated that many see this as a significant COVID risk, which could cause further weakness in China’s economy. “But, I believe this gives policymakers an opportunity to develop their pandemic strategies.”