China’s blockade could threaten half of the economy

According to Bloomberg Economics, the action to “directly hit” Guangdong Province, which accounts for 11% of Shenzhen, hit 17.5 million people in Shenzhen on Sunday amid a surge in Covid-19 infections in the city. Blocked for at least a week. GDP..

According to economists at Australia & New Zealand Banking Group Ltd, China’s GDP and half of its population will be affected by recent outbreaks as incidents surge elsewhere.

Bloomberg

“Previous measures to contain the relapse of the virus left the manufacturing industry almost intact,” Bloomberg Economics Chang Shu and David Ku said on Monday. They said the blockade in Shenzhen would hurt the production of industries such as technology and machinery supplied to the global supply chain.

“In addition to the double impact on consumption and output, the spillover beyond China enhances the stakes in this blockade,” the economist added.

The Shenzhen move occurs when other parts of China are trying to combat the rapid epidemic of the coronavirus. Shanghai has suspended face-to-face classes and suspended intercity bus services. On the other hand, the northeastern industrial center of Changchun in Jilin Province has a population of about 9 million and will account for about 11% of China’s annual automobile production in 2020. last week.

Raymond Yong, chief economist at ANZ’s Greater China, said in a note on Monday that “more cities could follow Shenzhen customs,” closing public transport and blocking people from entering and exiting. Mentioned the city’s decision. “If the blockade is extended, China’s economic growth will be significantly affected.”

Yeung said ANZ has not yet revised its 2022 forecast, but is “warning” of further restrictions. ANZ forecasts annual GDP growth of 5%, which is below the government’s target of about 5.5%.

If major coastal and northeastern states were blocked for a week, led by Shenzhen, economic costs could reach 0.8 percent of GDP growth, Yeung said.

Nomura Holdings stated China’s economic costs COVID The zero approach is high and market participants may be too optimistic about this year’s growth outlook. Banks expect GDP growth to be 4.3%, well below the economist’s consensus forecast of 5.2%.

China faces rapidly expanding clusters created by highly infectious Omicron mutants. The number of new cases daily on Saturday increased from just over 300 a week ago to over 3,300. This surge poses an unprecedented challenge to the Covid Zero strategy of countries that have previously protected vast industrial sectors but curtailed consumption.

Foxconn shutdown

Shenzhen is home to major high-tech companies such as Tencent Holdings Ltd. and Foxconn, a supplier of Huawei Technologies Co. Apple Inc. Foxconn is a Taiwanese company, also known as Hon Hai Precision Industry, headquartered in China in the region. In response to the blockade, the company has shut down its business in Shenzhen, including a site that produces iPhones.

Bloomberg

Major financial companies such as Ping An Insurance Group Co. and China Merchants Bank Co. are also headquartered in the city. In addition, several foreign banks such as UBS Group AG and HSBC Holdings have branches in the region.

According to notices and local media reports, the city’s securities firms and major state-owned banks have ceased face-to-face services after the blockade.

Shenzhen is the second most important port in China after Shanghai, processing about 10% of the containers shipped from China every month. Part of the port was closed for several weeks in mid-2021 to contain Covid’s local outbreak, but the port was still able to ship about 2 million containers in June 2021. rice field.

Yantian Harbor said in a statement Monday that it is operating normally after Shenzhen has stepped up its anti-virus measures.

According to Bloomberg Economics, Guangdong’s $ 795 billion worth of exports in 2021 accounted for 23% of China’s shipments that year, the highest in any state. Shenzhen alone had an export of $ 303 billion.

“Even if the blockade takes place only for a short period of time (in our baseline), the impact is likely to last for weeks longer due to the city’s supply turmoil and subsequent repercussions,” said the economist. rice field.

Covid Zero hasn’t caused much financial turmoil so far, but due to limitations economic Luis Kais, Chief Economist for the Asia Pacific region of S & P Global Ratings, said:

“Globally, the economic impact of Covid is diminishing as governments deregulate and more people move to a’live with Covid’approach,” Kuijs added. “But for China, Omicron is an important risk for domestic demand, production, and perhaps the supply chain.”