The prospect of lockdowns in Beijing fuels more concerns about supply chain disruptions.
The prospect of further lockdowns in China prompted a fresh wave of economic anxiety on Monday as investors and companies whose supply chains run through China contemplated the impact of 70 new virus cases that the Beijing government said it had detected over the weekend.
The city government ordered one of its districts to test all 3.5 million of its residents for coronavirus in the coming days, a move that may be a prelude to a larger lockdown in China’s capital city. Shanghai, a major port and business center, has been locked down for roughly a month, part of China’s “zero Covid” strategy. Other Chinese cities both large and small have announced their own restrictions on the movement of residents in a bid to keep the virus from spreading.
The lockdowns present yet another challenge for global supply chains that have been stressed by pandemic shutdowns and the war in Ukraine, leading to greater competition for goods and higher prices that are fueling inflation worldwide.
While Chinese authorities have sought to keep factories and especially ports operating by keeping workers on premises in so-called closed loop systems, the lockdowns have interrupted shipments and lengthened delivery times for many of the global companies that depend on Chinese factories.
Phil Levy, the chief economist at Flexport, a freight forwarder, said in an email that while Beijing is an important city, “it is not at the heart of factory production or supply chain operations,” and that lockdowns there would have a more limited impact than previous restrictions in Shanghai and Guangdong, where ports still continued to mostly operate.
But the effects would depend on where outbreaks occurred — for example whether they shut down a port — and how long lockdowns persisted, he added. “This is a relatively slow part of the year, but there is plenty of catch-up to be done and things will soon be due to build. The costs will mount the longer this lasts.”
The disruptions that are still unfolding in Shanghai and other Chinese cities are likely to reverberate along global supply chains in the coming months.
The Latest on China: Key Things to Know
The war in Ukraine. China’s officials and its media are increasingly repeating the Kremlin’s narrative about the conflict. This joint propaganda has undercut Western efforts to isolate Russia diplomatically and has found a receptive audience in the Middle East, Africa and Latin America.
A new security deal. The Solomon Islands signed a sweeping security agreement with China that could threaten the stability of the entire Asia-Pacific region. The deal gives Beijing a foothold in an island chain that played a decisive role in World War II and could be used to block vital shipping lanes.
A strict Covid policy. As China grapples with its worst Covid-19 outbreak since the beginning of the pandemic, the government is following a “zero Covid” strategy. The approach has put hundreds of millions of people’s lives on pause and could have far-reaching effects.
A pause on wealth redistribution. For much of last year, China’s top leader, Xi Jinping, waged a fierce campaign to narrow social inequalities and usher in a new era of “common prosperity.” Now, as the economic outlook is increasingly clouded, the Communist Party is putting its campaign on the back burner.
According to data from project44, a logistics platform, the number of vessels that were berthing at the Shanghai port last week had dropped by about half since the lockdown began, while the number of vessels seeking to call at the nearby port of Ningbo jumped, as shipping companies tried to get around restrictions. The time that imported containers were spending in the port had also risen sharply, from 4.6 days on March 28 to 12.1 days on April 18, the company said, as coronavirus testing requirements for truck drivers limited the ability to get containers in and out of the port.
Fears of broader lockdowns weighed on global stocks on Monday, while oil and other commodities also fell in anticipation of lower demand.
Elisabeth Waelbroeck-Rocha, chief international economist at S&P Global Market Intelligence, said that, in addition to disrupting global supply chains and fueling inflation, coronavirus outbreaks and accompanying lockdowns had undermined Chinese economic growth in March and April, making it unlikely that China would reach the government’s target of 5.5 percent growth in gross domestic product in 2022.
The epicenter of the outbreak shifted from Jilin province in the northeast to Shanghai, a manufacturing base for high-end auto components, but smaller-scale outbreaks in other regions have largely been brought under control, she wrote in a note.
