Analysts are ringing warning bells but say investors are misjudging how severe the global economic fallout from these ongoing isolation orders could be.
“Global markets may still be underestimating the impact as much attention continues to focus on the Russia-Ukraine conflict and US Federal Reserve rate hikes,” Lu Ting, Nomura’s chief economist and colleagues for China, wrote in a week-long statement Note.
The port of Shanghai, which handled over 20% of China’s freight traffic in 2021, is essentially at a standstill. Food supplies stuck in shipping containers without access to refrigeration equipment rot.
Incoming cargo now stalls at sea terminals in Shanghai for an average of eight days before being shipped elsewhere, a 75% increase since the start of the most recent lockdown. Storage time for export has gone down, but that’s probably because new containers aren’t being sent from warehouses to docks, according to Supply Chain Visibility Platform project44. Cargo airlines have canceled all flights in and out of the city, and more than 90% of the trucks supporting import and export deliveries are currently out of service.
According to the government statistical yearbook for 2021, Shanghai produces 6% of China’s exports and factory closures in and around the city shake up other supply chains.
The factories of Sony and Apple suppliers in and around Shanghai are at a standstill. Quanta, the world’s largest contract notebook manufacturer and a MacBook maker, has ceased production entirely. The plant accounts for about 20% of Quanta’s notebook production capacity, and the company previously estimated it would ship 72 million units this year. Tesla has shut down its GigaFactory in Shanghai, which was producing about 2,000 electric cars a day.
On Friday, China’s Ministry of Industry and Information Technology said in a statement that it had dispatched a task force to Shanghai to work on a plan to restart production at 666 key manufacturers in the lockdown city. Tesla executives hope to be allowed to reopen their doors by Monday, ending the factory’s longest hiatus since it opened in 2019. The automaker has lost over 50,000 production units so far, according to materials verified by Reuters.
“The impact on China is large and the knock-on effects on the global economy are significant,” said Michael Hirson, Eurasia Group’s China and Northeast Asia practice lead. “I think we’re going to expect more volatility and economic and social disruption for at least the next six months.”
The ongoing disruptions to Chinese manufacturing and shipping could help accelerate a key Biden administration initiative aim to reduce US dependence on Chinese products and supply chains.
But the abandonment has serious immediate economic implications.
In a report released last week, the World Trade Organization warned of a worst-case scenario in which global economic decoupling, spurred by Russia’s invasion of Ukraine, could reduce long-term global GDP by 5%. That is highly unlikely given the deep financial ties between China and the US. Investments in each other’s stocks and bonds totaled $3.3 trillion at the end of 2020, according to data from Rhodium Group.
“These are still very interdependent economies,” Hirson said. “This integration is not easy to reverse because it would be incredibly costly for the US and the global economy.”
Still, American business leaders believe in decoupling is already underway. Oaktree co-founder Howard Marks wrote in late March that “the pendulum [has] back to local sourcing” and away from globalization. Blackrock chairman Larry Fink echoed the sentiment in a letter to the company’s shareholders. “The Russian invasion of Ukraine,” he wrote, “has brought about the globalization that we have experienced in recent years, put an end to three decades. In a speech to the Atlantic Council last week, Treasury Secretary Janet Yellen told the US is Keep a close eye on China’s political and economic ties with Russia. “In the future, it will become increasingly difficult to separate economic issues from broader considerations of national interests, including national security,” she said.
While she said she hopes a “bipolar split” between China and the US can be avoided, “the world’s attitude towards China and its willingness to pursue further economic integration may well depend on China’s response to our call for decisive action on Russia.” to be influenced.”
A third of China is now in quarantine and its economy is suffering.
China’s recent response to the pandemic is expected to cost at least $46 billion in lost economic output per month, or 3.1% of GDP, according to a study by the Chinese University of Hong Kong. Analysts no longer believe China’s target of 5.5% economic growth for 2022, the country’s least ambitious goal in three decades, is realistic. The World Bank revised its estimates for Chinese economic growth to 5% this week, but noted that should be the case continued restrictive policies that could fall to 4%. The economic strains come at a politically precarious time. This fall, Chinese President Xi Jinping will seek a third term as head of state, breaking with the tradition of a maximum of two terms.
Correction: A previous version of this story misrepresented the number of people in lockdown across China.
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