China is trying to limit the economic impact of the Shanghai shutdownOn March 30, 2022 by editor
BEIJING – Millions of Shanghai residents have lined up for coronavirus testing in the closed metropolis, with authorities promising tax cuts for shopkeepers and maintaining the functioning of its busy port to limit barriers to industry and trade.
The ruling Communist Party is trying to fine-tune its “Zero Tolerance” epidemic strategy to cut jobs and other costs in the world’s second-largest economy.
The Shanghai government has announced tax refunds, reduced rents and low-cost loans for small businesses. An official statement on Tuesday promised “job stabilization” and “optimizing the business environment”.
In the world’s busiest port of Shanghai, operations were normal and managers made extra efforts to ensure ships could “call normally”, state TV reported. The port serves the Yangtze River Delta, one of the busiest manufacturing areas in the world with manufacturers of smartphones, auto components and other products.
Activities were normal at Shanghai airports and train stations, according to online news outlet The Paper. Earlier, bus services were closed in 26 million cities. Viewers must show a negative virus test.
Abroad, China’s biggest potential impact on its Asian neighbors and the rest of the world could come from the development of declining demand in the world’s most populous consumer market, economists say.
China is the largest trading partner for all its neighbors, including Japan and South Korea.
Economic growth was already projected to slow to 8.1% last year due to the government’s campaign to tackle corporate debt and other epidemics-related challenges. The ruling party’s official target is 5.5%, but predictors say even that seems difficult to reach and will require stimulus spending.
From oil and coal to electronics and consumer goods, China is a huge market for most industries.
“China is the single largest consumer of virtually everything. This is important outside of China, “said Rob Cornell, ING’s chief Asia economist. “If the use of China by Kovid is dropped, it is going to be something that filters the supply chain and affects the countries in the region.”
Louis Quiz, chief Asia-Pacific economist at S&P Global Ratings, says Chinese officials are trying to get products to customers and secure supply chains. He noted that after the previous shutdown, the factories took orders by working overtime.
Despite fears that a lockdown in China would slow recovery from last year’s global supply chain problems, “the impact on the supply chain is not as great as outside observers fear,” Quiz said. “These restrictions have a greater impact on spending and demand in China.”
Nevertheless, the impact on Shanghai should be “relatively muted” if the city has an outbreak as well as the southern business center of Shenzhen did earlier, the kernel said.
Shenzhen, a technology and finance center of 17.5 million people, imposed a similar citywide shutdown in mid-March and reopened a week later.
Employees in the financial industry can work from home, while automakers and other large manufacturers can live in factory workers in a “closed loop system” that separates them from outside contact.
General Motors Co. and Volkswagen AG said their factories in Shanghai were operating normally. GM said in an email that it was pursuing “contingency plans on a global basis” with suppliers to reduce covid-related uncertainties.
In northeastern China, BMW Group says state-owned joint ventures with Brillians Auto in the city of Changchun suspended production on March 24 after an outbreak there.
The Daily Economic News reported that thousands of stock traders and other finance employees were sleeping in their offices to avoid contact with outsiders. It said the Shanghai Stock Exchange was operating normally in a “closed office” with fewer staff.
The benchmark Shanghai Composite Index rose 1.3% early Wednesday. Most other regional markets have also advanced.
Nearby, Riverfront Bund, Shanghai’s most famous vista, was secluded and empty from the general crowd of pedestrians.
Most restaurants were only allowed to serve dinner to those who ordered via mobile phone and waited outside to collect food. In shopping malls, visitors need to wear masks and register using a smartphone app.
If anti-disease restrictions disrupt activity at the Shanghai port, it could be a major threat to industry and commerce.
It serves one of the busiest manufacturing regions in the world with manufacturers of smartphones, auto components, solar equipment, home appliances and other products. Shanghai handles the equivalent of 140,000 cargo containers per day.
“If the port is closed, there will be more displacement, but not everything is right now,” Kernel said. “It’s another thing we won’t need.”
Last year, a month-long slowdown at another major port in Shenzhen, Yantian, created a backlog of thousands of shipping containers and sent shockwaves through worldwide supply chains.
In Shanghai, truck drivers delivering goods must show a negative virus test and an electronic “handover slip” within the last 48 hours. But the delivery continues.
The market shake at the start of the week may be an exaggerated “knee-jerk reaction” that does not reflect the “real reality of the situation,” but investors were already uneasy about China and the world economy, says Michael Avery of Rabobank.
“We have a whole mountain of problems to worry about, and this is just one of many,” said Avery. “If that’s the case, it’s not hard to see a cowardly lockdown, looking at recent history books and seeing how it works. But it interferes with many other problems. “