China blocks 2 major cities, half of the economy may be paralyzed
Last Sunday, Chinese authorities locked down 17.5 million residents of Shenzhen for at least a week amid a spike in the number of Covid-19 infections in the city. Shanghai suspends face-to-face learning and shuts down intercity bus service. While the northeast industrial center of Changchun, in Jilin was closed last week. It is a city of about 9 million people and accounts for about 11% of China’s total annual car production by 2020.
The disease spreads quickly
Number of infections in China in the past 7 days.
As infections soar elsewhere, half of China’s GDP and population will be affected by the latest outbreak, according to economists at Australia & New Zealand Banking Group Ltd. Bloomberg Economics said in a recent note that as of March 9, there were 14 provinces with high or medium risk zones, accounting for 54.4% of the country’s GDP.
“Other cities can follow Shenzhen’s approach,” Raymond Yeung, chief mainland China economist at ANZ, said in an article on Monday. He noted the decision to close public transport and prevent people from going in and out of the city. “If the blockade order is prolonged, China’s economic growth will be significantly affected.”
While Mr Yeung said ANZ had not yet adjusted its forecast for 2022, it was “cautious” with further restrictive measures. ANZ forecasts GDP growth of 5% this year, below the government’s target of around 5.5%.
Mr. Yeung said that if the key provinces along the coast and in the northeast follow the pattern of Shenzhen city and blockade for 1 week, the economic loss could reach 0.8 percentage points. .
Nomura Holdings Inc. The economic cost of the Zero Covid approach in China is very high and investors may have been overly optimistic about growth prospects this year. The bank expects GDP growth this year to be 4.3%, well below economists’ consensus estimate of 5.2%.
China is facing outbreaks of highly infectious omicron variants. The number of new cases per day last week increased from just over 300 to more than 3,300 on Saturday. This increase poses an unprecedented challenge to the country’s Zero Covid strategy. So far, this strategy has protected many of their industries but also reduced consumption.
Although Shenzhen’s GDP accounts for only 2.7% of China’s gross national product, the city is home to tech giants like Tencent Holdings and Huawei. Foxconn is also headquartered in this area. The company has halted operations in Shenzhen, including an iPhone production site, to comply with the blockade order.
The worst outbreak since the virus appeared in Wuhan
The number of infections in China will increase sharply in 2022.
Major financial firms, including Ping An Insurance Group Co. and China Merchants Bank Co. also has its headquarters in this city. Some foreign banks such as UBS Group AG and HSBC Holding have also opened branches in the aforementioned region.
According to notices and reports in local media, brokerage firms and major state-owned banks in the city suspended in-person services after the lockdown.
Shenzhen is the second most important port in China after Shanghai. It handles about 10% of containers shipped from China at all times. Part of the port was closed for weeks in mid-2021 to contain a localized Covid outbreak. But even then, the port was able to handle nearly 2 million containers by June 2021.
Yantian Port said in a statement on Monday that it was operating normally after Shenzhen tightened virus controls.
Louis Kuijs, chief economist for Asia-Pacific at S&P Global Ratings, said that while Zero Covid has not resulted in major economic disruption so far, the restrictions are hurting the economy. particularly vulnerable to the more contagious variant, Omicron”.
Mr. Kuijs added: “Around the world, the economic impact of Covid is fading as governments relax restrictions. Many people are moving towards a more ‘living with Covid’ approach.” For China, however, Omicron is a major risk to domestic demand, output, and even the supply chain.”
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