W.Hen from China On March 5, the government said it would target 5.5% economic growth this year, a target demanded. Now it looks almost fantastic. On March 14, China recorded 5,370 new cases of Covid-19. That would be a negligible number in many countries. In China, however, it is an unbearable threat to its cherished zero-cue policy. In most cases the northeastern province of Jilin, which has gone into complete lockdown. However, lockdowns of varying severity have also been imposed in Shanghai and Shenzhen, two cities responsible for more than 16% of China’s exports.
In Shanghai, anyone wishing to leave the city must show a negative result in a nucleic-acid test taken within the previous 48 hours. Parks and recreational areas have been closed. The entire block of flats is locked down if any of the occupants are suspected to be in contact with the virus.
Restrictions in Shenzhen go even further. People are allowed to store groceries, but they now have to shout for a week as they go through three rounds of compulsory testing. Everyone must work from home or not at all, unless they help to provide the necessary goods and services in the city or in neighboring Hong Kong.
Lockdowns pose a clear threat to the world’s supply chain. Shenzhen (whose name can be translated as “deep valley”) is responsible for about 16% of China’s high-tech exports. According to Reuters, Foxconn, which makes iPhones for Apple, has suspended operations at its plant in the region for at least the first half of the week. Other links in the tech supply chain have also stopped production. And the wholesale electronics markets in the vicinity of Huakiangbei, the landmark of “low-completion globalization”, are no more.
Shenzhen is home to the Yanxian port, one of the busiest in the world. After an outbreak of covid in May last year, it briefly had to operate at only 30% of its capacity. It contributed to the long towers of ships at sea and the high towers of containers in the docks. This time around, “shockwaves will be felt across America … and almost everywhere in the world,” the container Johannes Schlingmeier warned. X.Change, a platform for leasing containers.
Still, some way from snapping the Chinese supply chain. For example, Foxconn has some room for strategy. It has more than 40 plants in China, and most of its iPhone production takes place outside Shenzhen. Bank of America’s Helen Kiao and colleagues point out that March is not a peak delivery season for many of what Shenzhen makes. And Chinese manufacturers will go to great lengths to continue production. In Shanghai, for example, a car parts maker told essential workers to stay and sleep on factory premises when the situation permits, according to Letpost, a Chinese media outlet. Some factories in Shenzhen will also be allowed to operate in such bubbles.
A more specific economic threat posed by the recent outbreak is Chinese consumption. The country’s retail sales have recently shown signs of life: they rose 4.9% in January and February (adjusted for inflation), compared to two months a year earlier. But Nomura, a bank, thinks retail sales, in a real sense, could shrink again in the coming months.
The outbreak also delayed any relaxation of China’s zero-quad policy. In recent weeks, there have been some signs of a softening. Prominent public health experts began talking about ways to coexist with the virus. China Meheko, a state-owned company, has signed an agreement to supply Pfizer’s Paxlovid pills, which help protect infected people from serious illness. However, the latest outbreak has been met with more harshness. During a visit to Jilin on March 13, Sun Chunlan, one of the country’s four deputy prime ministers, said China’s provinces should pursue their zero-cue strategy without compromise.
That indifference, however, may require compromise on other goals. Morgan Stanley, a bank, has cut its economic growth forecast for China from 5.3% to 5.1% this year. It thinks GDP The first quarter may not increase at all compared to the previous three months. The economy could recover by the end of the year. But if China is to get closer to its growth target, it must first get out of its abyss. 3
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This article was published in the print edition of the section “A Deep Bass” in the section on Finance and Economics