China tries to limit economic blow from Shanghai shutdown due to Covid surge

As millions of Shanghai residents line up for coronavirus tests in the shuttered metropolis, authorities are promising tax cuts for traders and keeping its busy port to limit disruption to industry and commerce. trade.

The shutdown this week of most activity in China’s most populous city to contain virus outbreaks has rattled financial markets already jittery over Russia’s war on Ukraine, rising interest rates American interest and the Chinese economic slowdown.

The ruling Communist Party is trying to refine its zero-tolerance pandemic strategy to limit job losses and other costs to the world’s second-largest economy.

The Shanghai government has announced tax refunds, rent reductions and low-cost loans for small businesses. A government statement on Tuesday promised to stabilize jobs and optimize the business environment.

At Shanghai’s port, the world’s busiest, operations were normal and managers made extra efforts to ensure ships could call as normal, state television reported. The port serves the Yangtze River Delta, one of the world’s busiest manufacturing regions with makers of smartphones, auto components and other goods.

Operations at Shanghai airports and train stations were normal, according to online newspaper The Paper. Bus service to and from the city of 26 million people was suspended earlier. Visitors are required to present a negative virus test.

Abroad, the greatest potential impact on China’s Asian neighbors and the rest of the world will likely come from developments that cool demand in the world’s most populous consumer market, economists have said.

China is the largest trading partner of all of its neighbors, including Japan and South Korea.

Economic growth was already expected to decline from last year’s 8.1% due to a government campaign to reduce corporate debt and other challenges unrelated to the pandemic. The ruling party’s official target is 5.5%, but forecasters say even that looks elusive and will require stimulus spending.

From oil and coal to electronic components and consumer goods, China is a huge market for most industries.

China is the biggest consumer of almost everything. That matters outside of China, said Rob Carnell, chief Asia economist at ING. If Chinese consumption is knocked down by COVID, it will be something that will filter the supply chain and affect countries in the region.

Louis Kuijs, chief economist for Asia-Pacific at S&P Global Ratings, said Chinese authorities were trying to ensure goods reached customers and to protect supply chains. He noted that after previous shutdowns, factories caught up with orders by working overtime.

Despite fears that shutdowns in China could slow the recovery from last year’s global supply chain problems, the impact on supply chains is not as severe as many outside observers fear. , said Kuijs. These restrictions tend to have a greater impact on spending and demand in China.

Still, the impact on Shanghai should be relatively muted if the city contains its outbreak as the southern business hub of Shenzhen did earlier, Carnell said.

Shenzhen, a technology and financial hub of 17.5 million people, imposed a similar citywide shutdown in mid-March and reopened a week later.

Employees in financial industries can work from home, while automakers and other large manufacturers can have workers live in factories in a closed-loop system isolating them from outside contact.

General Motors Co. and Volkswagen AG said their factories in Shanghai were operating normally. GM said in an email that it was implementing contingency plans globally with suppliers to reduce COVID-related uncertainties.

In northeast China, BMW Group said factories in its joint venture with state-owned Brilliance Auto in the city of Changchun suspended production on March 24 following an outbreak.

Thousands of stock traders and other finance workers slept in their offices to avoid contact with strangers, the Daily Economic News reported. He said the Shanghai Stock Exchange was operating normally with a reduced staff in a closed office.

The benchmark Shanghai Composite rose 1.3% on Wednesday morning. Most other regional markets also grew.

Nearby, the riverside Bund, Shanghai’s most famous sight, was quiet and empty of its usual crowd of pedestrians.

Most restaurants were only allowed to serve customers who ordered by mobile phone and waited outside to collect meals. Mall visitors had to wear masks and register using a smartphone app.

A greater threat to industry and commerce looms if anti-disease restrictions disrupt business in the Port of Shanghai.

It serves one of the busiest manufacturing regions in the world, with manufacturers of smartphones, automotive components, solar equipment, home appliances and other goods. Shanghai handles the equivalent of 140,000 freight containers per day.

If the port is closed, there would be even more dislocation, but it’s not like all is well now, Carnell said. It’s just another thing we wouldn’t need.

Last year, a month-long slowdown at another major port, Yantian in Shenzhen, caused a backlog of thousands of shipping containers and sent shockwaves through global supply chains.

In Shanghai, truckers delivering goods were required to present a negative virus test within the past 48 hours and an electronic delivery slip. But the deliveries continued.

The chills in markets seen earlier in the week may be an exaggerated knee-jerk reaction that doesn’t reflect the true reality of the situation, but investors were already worried about China and the global economy, Michael Every said. of Rabobank.

We have a whole mountain of issues to worry about, and that’s just one of many buttresses,” Every said. If that’s all it is, a COVID lockdown, it’s not hard to look into recent history books and see how it plays out. But it interfaces with a lot of other issues.

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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