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Friday, March 31, 2023

China’s Shanghai Shutdown Causes Widespread Economic Blowout

As millions of Shanghai residents wait in line for coronavirus testing in the city’s closed-down metropolis, officials promise shops tax breaks and the operation of the city’s busiest port to minimize interruptions to industry and commerce.

The closure of most operations in China’s most populated city this week to combat virus outbreaks rattled financial markets already jittery over Russia’s war in Ukraine, increased US interest rates, and a Chinese economic downturn.

The governing Communist Party is attempting to fine-tune its epidemic approach of “zero tolerance” in order to limit job losses and other costs to the world’s second-largest economy.

Tax rebates, rent reductions, and low-cost loans for small enterprises have all been offered by the Shanghai government. In a statement released Tuesday, the administration vowed to “stabilize jobs” and “improve the business environment.”

According to state television, activities at the world’s biggest port, Shanghai, were routine, and administrators went out of their way to guarantee that vessels “may call properly.” The Yangtze River Delta is one of the world’s busiest industrial zones, with companies producing cellphones, vehicle parts, and other items.

According to the online news site The Paper, operations at Shanghai airports and railway stations were regular. Earlier, bus transportation into and out of the 26-million-strong metropolis was halted. A negative virus test is needed of all visitors.

According to experts, the most significant possible impact on China’s Asian neighbors and the rest of the globe would come from circumstances that dampen demand in the world’s most populous consumer market.

All of China’s neighbors, including Japan and South Korea, see it as their most important trading partner.

Due to a government push to reduce corporate debt and other problems unrelated to the epidemic, economic growth was already expected to slow from last year’s 8.1 percent. The stated aim for the ruling party is 5.5 percent, but forecasters say even that is difficult to achieve and would require stimulus expenditure.

China has a significant market for most sectors, from oil and coal to electronics components and consumer products.

“China is the world’s largest single consumer of almost everything. Outside of China, it counts,” said Rob Carnell, ING’s top Asia economist. “If COVID has a negative impact on China’s consumption, it will seep down the supply chain and harm other nations in the area.”

Chinese officials are attempting to guarantee goods reach customers and secure supply chains, according to Louis Kuijs, head Asia-Pacific economist for S&P Global Ratings. After past shutdowns, manufacturers were able to catch up on orders by working overtime, he said.

Despite concerns that China’s lockdowns may hinder the recovery from last year’s global supply chain difficulties, Kuijs stated, “the impact on supply chains is not as large as many outside observers worry.” “In China, these limitations tend to have a greater impact on spending and demand.”

The impact on Shanghai, though, should be “quite muted” if the city manages to restrict the epidemic as successfully as Shenzhen’s southern commercial district did previously, according to Carnell.

Shenzhen, a tech and finance hub with a population of 17.5 million people, shut down the city in mid-March and reopened a week later.

Financial sector employees can work from home, while automakers and other large businesses can have people live in facilities in a “closed loop system” that keeps them away from the outside world.

General Motors Co. and Volkswagen AG both confirmed their Shanghai operations were up and running. In an email, GM stated that it was implementing “global contingency measures” with suppliers to eliminate COVID-related concerns.

BMW Group stated its joint venture with state-owned Brilliance Auto in Changchun, China’s northeast, has halted production on March 24 due to an outbreak there.

According to the daily Daily Economic News, thousands of stock dealers and other financial personnel were sleeping in their workplaces to prevent interaction with outsiders. The Shanghai Stock Exchange, it added, was operating regularly with a smaller staff in a “closed office.”

Early Wednesday, the Shanghai Composite index was up 1.3 percent. The majority of other regional markets also improved.

The riverside Bund, Shanghai’s most renowned sight, was calm and devoid of the typical throngs of people.

Most restaurants were only permitted to serve clients who placed their orders over the phone and waited outside to pick up their food. Mall visitors were obliged to put on masks and register using a smartphone app.

Anti-disease regulations at the Shanghai port might pose a greater danger to business and commerce.

It caters to one of the busiest manufacturing zones in the world, with companies producing cellphones, vehicle components, solar equipment, household appliances, and other items. On a daily basis, Shanghai handles the equivalent of 140,000 freight containers.

“If the port is closed, there will be much more disruption,” Carnell said, “but it’s not like everything is good now.” “It’s simply another else we don’t need.”

A one-month halt at another major port, Yantian in Shenzhen, resulted in a backlog of thousands of shipping containers and sent shockwaves across global supply networks last year.

Truck drivers transporting products in Shanghai were obliged to provide an electronic “handover slip” and a negative virus test within the previous 48 hours. However, the deliveries persisted.

Market tremors earlier this week may have been an overblown “knee jerk reaction” that didn’t represent the “true truth of the issue,” but investors were already concerned about China and the global economy, according to Rabobank’s Michael Every.

“We have a pile of problems to deal with, and this is only one of them,” Every explained. “If that’s all it is, a COVID shutdown, it’s not difficult to find examples in recent history books.” However, this is intertwined with a slew of other concerns.”

Cedric Blackwater
Cedric Blackwater
Cedric is a journalist with over a decade of experience reporting on local US news, and touching on many global topics. He is currently the lead writer for Bulletin News.

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