Lockdowns in China affect ports and businesses

As Covid-19 spreads across China, major corporations are closing down factories, ports are becoming increasingly congested, and staff members are being barred from working as authorities enforce city-wide lockdowns and order mass testing on a scale not seen in nearly two years.

Back-to-back stoppages in the world’s second-largest economy, which has established a zero-tolerance stance on Covid-19, are heightening fears that the global economy would be harmed. Companies such as Samsung Electronics, Volkswagen, in addition to Nike and Adidas’ suppliers, have already felt the effects of lockdowns in China.

Authorities have been taking steps to prevent the spread of the disease in cities across the country since the end of December, including Tianjin in the east, Xi’an in the center, and Shenzhen, the country’s technological capital, in the south. Ningbo-Zhousan, which is further south than Tianjin, is the world’s third-largest container terminal and may experience a worsening in terms of transport delays and cargo storage limitations imposed following more than a dozen confirmed cases in the area.

Chinese officials are now re-enacting the same successful strategies used to contain Covid outbreaks at the start of the pandemic, which resulted in worldwide production and supply chain disruptions.

Economists assessment 

Economists warn that the consequences, this time, might be more severe given the contagious nature of the omicron variant, which has already been found in a few areas. The strain has hit the country at the moment that Beijing tries to contain eventual outbreaks before the start of the Winter Olympics, which should start on February 4th.

“The omicron poses the risk of making us regress in terms of supply chain bottlenecks,” says Frederic Neumann, head of Asian Economy Research at HSBC. “The situation can be even more challenging now compared to last year, given China’s increasingly more significant participation in global supply.”

Various economists stated that China is likely to intensify its isolation policy and some foresee a national lockdown on the making, which has not happened since April 2020. On Tuesday, Goldman Sachs revised its growth prediction for China in 2022 from 4.8% to 4.3% citing recent Covid-19 facts.

Market Outlook

Toyota informed that its factories in Tianjin have their operations halted on Monday and Tuesday due to city-wide mandatory testing. Nearly 14 million citizens of Tianjin, an industrial hub responsible for 1.7% of Chinese exports, had to be tested after the detection of two omicron cases.

Stephan Wöllenstein, the chief executive officer of Volkswagen in China, informed, on Tuesday, January 11, the shut down of one of its factories in the city. The automaker had already closed a factory in Ningbo after a brief outbreak.

“We have closely followed what happens there as omicron has the potential of significantly altering the Chinese scenario compared to 2020 and 2021”, claimed Guillaume Faury, Airbus’ chief executive on Monday, the 10th. He said that the country hasn’t registered any supply disruption, not even in Tianjin, where the company operates an aircraft final assembly line.

Since the beginning of the pandemic, consumers and Western retail sellers have grown more dependent on Chinese products that range from bicycles to laptops. China’s trade surplus is expected to hit a record high in 2021 in terms of value. According to Neumann, the risk is that “in the upcoming months we will endure the ‘biggest of all supply chain disruptions: a stoppage of factories in Asia by the omicron”.

Source: Valor Econômico

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https://valor.globo.com/mundo/noticia/2022/01/12/alta-de-lockdowns-fecha-portos-e-empresas-na-china.ghtml

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