China locks down more than 30 million people as COVID-19 flares, threatening global supply chains

Beijing – Chinese authorities on Tuesday tightened anti-virus checks on ports, increasing the risk of trade disruptions after some car and electronics factories shut down while the government fights the worst in the country. COVID-19[feminine[feminine outbreak since the beginning of the pandemic two years ago.

China This week banned most people from leaving a northeastern province affected by the coronavirus and mobilized military reservists on Monday as the rapid spread “Stealthy omicron” variant BA.2 caused an increase in infections.

Stock prices in China and Hong Kong plummeted for a second day after closing on monday shenzhen, a technology and financial center adjacent to Hong Kong in the south, and Changchun, an automobile center in the northeast. Bus service to Shanghai, the business capital and largest city in China, was suspended.

The number of cases in China is low compared to other major countries or Hong Kong. But authorities are enforcing a “zero tolerance” strategy aimed at keeping the virus out of the country. It has temporarily closed major cities to find all infected people.

The restrictions come at a time when the world economy is under pressure from Russia’s war on Ukraine, rising oil prices and weak consumer demand.

“We can’t think of any risk to the global economy, excluding nuclear war, that is greater than the risk of a COVID outbreak in China that shuts down industrial production,” said Carl B. Weinberg of High-Frequency Economics in a report. “A myriad of manufacturing supply chains pass through China.”

The risk to ports

Economists say that for the time being, smartphone manufacturers and other industries can use factories and suppliers in other parts of China. But there is a greater threat if business is disrupted in the nearby ports of Shenzhen, Shanghai or Ningbo.

They link the Chinese factories that assemble most of the world’s smartphones and computers, as well as medical devices, appliances and other products, with foreign suppliers and customers of components. A one-month slowdown in Shenzhen’s Yantian port last year delayed thousands of containers and caused shock waves across global supply chains.

“The risk here is whether COVID will be found in Yantian Port,” said Iris Pang, China’s chief economist at ING. “If the port is to be suspended, it will affect many electronic imports and exports.”

There were no signs of major disruptions, but port operators announced slowdowns in face-to-face contact with shippers and sailors.

The agency managing the port of Shanghai closed the windows where customers send documents and said this feature would go online. He gave no indication that cargo handling or other operations were affected.

Lianyungang Port, north of Shanghai, announced that foreign sailors were banned from leaving ships or using the city to change crew.

Shenzhen has suspended cross-border freight service from Liantang to Hong Kong. He said the crossing of Man Kam To would be limited to handling fresh and live food to make sure Hong Kong received the right supplies.

“Significant risks”

“The Shenzhen blockade creates significant risks of supply chain disruptions,” Rajiv Biswas, chief Asian economist at IHS Markit, said in an email. The risk of global disruption “would intensify if the Shanghai authorities also decide to implement a blockade.”

The number of new cases reported in mainland China on Tuesday more than doubled to 3,507. Nearly three-quarters were in Jilin Province, where Changchun is located, with 2,601 cases. Hong Kong, which reports separately, had 26,908 cases on Monday.

Yantian Port tried to reassure customers that operations were normal. A statement on his social media account promised to make every effort to ensure the smoothness and stability of this “lifeline for port supply”.

China, where the pandemic began in late 2019 in the central city of Wuhan, became the first major economy to recover after Beijing closed factories, shops and offices to contain the disease.

This year, the Communist Party’s growth target in government is 5.5%. If achieved, it would be well below last year’s 8.1% expansion. But forecasters find it aggressive at a time when construction, which supports millions of jobs, is falling due to debt repression in the real estate sector.

Leaders promise tax cuts for entrepreneurs and increased spending on construction of public works. This could help increase consumer spending and dampen the economy from a slowdown in manufacturing.

The latest rise in infection, attributed to a rapidly spreading variant called “stealthy omicron”, defies Beijing’s pandemic strategy.

It was ordered to close all businesses in Shenzhen and Changchun except those supplying food, fuel and other basic necessities. Bus and metro services have been suspended. Millions of residents were told to be tested for viruses. Anyone who wants to enter Shanghai, a city of 24 million people with car factories, China’s largest stock exchange and global business offices, should be tested.

Elsewhere, the populous eastern province of Shandong had 106 new cases on Tuesday. Guangdong in the south, where Shenzhen is located, reported 48. Shanghai had nine and Beijing had six. Jilin Province, where Changchun is located, has banned residents from leaving the province and traveling between cities within it.

Wider confinements?

Volkswagen and Toyota, iPhone maker Foxconn and smaller companies have announced that they will suspend production in some factories. Others, such as telecommunications equipment maker Huawei Technologies Ltd., Apple Inc., General Motors Co. and electric vehicle brand BYD Auto, did not answer questions on Tuesday about how they could be affected.

“The risk of wider blockades is increasing,” Bank of America economists said in a report.

Volkswagen AG said Changchun’s factories for the VW and Audi brands were closed from Monday to Wednesday.

Toyota Motor Co. said Monday that its Changchun factory that manufactures RAV4 and Harrier SUVs has suspended operations.

Shenzhen, a city of 17.5 million people, is home to some of China’s largest companies, such as Huawei, BYD Auto, Ping An Insurance Co. of China and Tencent Holding, operator of the popular WeChat messaging system. Taiwan-owned Foxconn, which assembles Apple iPhones, is based in China in Shenzhen.

Foxconn has set up some smartphones and tablets in Shenzhen, but has moved most of its production out of town. Other manufacturers have also moved to less expensive parts of China or abroad. They maintain research and development, finance and marketing in Shenzhen, functions that can be done by employees working from home.

“Manufacturing is elsewhere, so unless all of China is affected by COVID, there won’t be a real shortage of concrete goods. For example, telephones,” Pang of ING said.

In addition, it appears that authorities are testing a “dynamic” zero “COVID policy” that still aims to prevent the virus, but uses “targeted blockades” to try to reduce the economic and social cost, said David Chao of Invesco.

“Many see this as a major risk of COVID that could cause further weakness in the Chinese economy,” Chao said. “But I think that gives policymakers a chance to evolve their pandemic policies.”