China’s Latest Covid-19 Lockdowns Begin to Weigh Down the Economy

China’s Latest Covid-19 Lockdowns Begin to Weigh Down the Economy

In March, strict pandemic control efforts resulted in lower car sales and higher pricing for basic things.

Shanghai saw barricades, panic buying, and deserted streets as the country’s most populous metropolis enforced a fresh lockdown. China’s anti-virus efforts impacted offices and factories, including Tesla’s, in the country’s largest virus outbreak in two years.

China’s tight Covid-19 lockdowns in Shanghai and other industrial centres are starting to impact the country’s economy, with vehicle sales falling and consumer prices soaring at their quickest rate in three months.

Car sales in China fell 10.5 percent year over year in March to 1.58 million vehicles, according to the China Passenger Car Association, as measures to manage coronavirus outbreaks halted auto manufacturers, hindered car shipments, and prevented buyers from visiting car dealerships.

Separately, the National Bureau of Statistics reported Monday that inflation increased by 1.5 percent on an annual basis in March, the largest increase in three months, as municipal lockdowns pushed up consumer prices.

The latest data show how China’s adoption of strict movement restrictions to combat the coronavirus could stifle the country’s economic growth. As pandemic restrictions spread, economists have lowered growth projections for the world’s second largest economy, casting doubt on the government’s ability to fulfill its objective of 5.5 percent growth this year.

To control the spread of the extremely contagious Omicron variety, China has imposed severe lockdowns in major manufacturing centres such as Shanghai, Shenzhen, and the northern province of Jilin since March. Factory closures have resulted as a result of these restrictions, which have exacerbated existing supply chain snarls.

For the tenth day in a row, cases in Shanghai, the epicenter of China’s current coronavirus outbreak, set a new high, with more than 26,000 locally transmitted infections, the majority of which are asymptomatic. According to health officials, Shanghai accounted for 95 percent of China’s daily new domestic cases.

Shanghai is in its third week of nationwide lockdowns, with most citizens confined to their homes and public transportation and non-essential companies shut down.

Shanghai officials have tested more than 21 million people in the last two days—roughly 80% of the city’s population—as part of a cautious effort to open up areas where there have been no Covid-19 instances for two weeks.

On Saturday, local officials announced that they will divide the city into three groups based on whether or not Covid-19 cases have been registered, and that citizens’ movement restrictions would be gradually lifted. According to government remarks released on Monday, at least five of the city’s 15 districts contain neighborhoods that qualify for curb relaxation.

Officials in Jilin province said on Monday that they hope to restore work and manufacturing in several of the province’s cities, where the capital city of Changchun has been under a lockdown for about a month. On Sunday, Jilin added 984 additional daily local cases.

Despite the fact that Guangzhou has not imposed a Shanghai-style citywide lockdown, most primary and middle schools in the 18 million-strong metropolis have switched to online learning as of Monday, and only those with a genuine need to leave the city and a negative Covid-19 test result are permitted to do so, according to local officials.

Guangzhou officials reportedly closed cinemas, pubs, and gyms, as well as reducing public transit, in areas where infections were discovered. According to local officials, the city is also constructing makeshift quarantine facilities as a preventative measure in the event of a potential rise in positive cases. 

Sudden shutdowns are causing increased production disruptions in industries such as automotive, electronics, and others. According to the China Passenger Car Association, Shanghai and Jilin, which are home to factories run by automakers such as General Motors Co., Tesla Inc., TSLA -0.49% ▼ Toyota Motor Corp., and Volkswagen AG, account for more than a fifth of China’s auto manufacturing.

According to those familiar with the situation, Tesla’s Shanghai factory is in the midst of the longest production halt since it began manufacturing in late 2019, having shut down operations on March 28 due to the shutdown there.

According to the people, the American electric car manufacturer is planning for the possibility of not being able to begin manufacturing until the end of April. A request for comment from a Tesla spokesperson was not returned.

Volkswagen’s Changchun joint-venture facility has been closed since mid-March, while its Shanghai plant has been closed since April 1. Toyota confirmed that its Changchun facility is still shuttered. NIO Inc., a Chinese electric car manufacturer, announced on Saturday that it has ceased production after its suppliers in numerous parts of the nation shut down due to Covid-19 outbreaks, and that vehicle deliveries will be delayed.

Some businesses, such as SAIC Motor Corp., have been able to avoid the issue by working in a bubble-like atmosphere, with workers living in the closed facility.

China’s car sales declined 4.5%on a quarterly basis from a year ago, according to the passenger car association, the third straight quarterly decline.

“The Covid-19 infections have had a tremendous impact on the production of car makers, while consumers are going out less for car purchases in regions hit by outbreaks”, he added.

The delivery of completed autos has also been delayed due to various anti-coronavirus standards in cities.

Sanford C. Bernstein analysts cut their full-year auto sales projection for the country by 500,000 vehicles to 22.5 million, owing to manufacturing halts tied to Covid-19 outbreaks. According to figures from the China Association of Automobile Manufacturers, China sold 26.3 million passenger and commercial automobiles in 2021.

Production in other countries has also been shocked. Mitsubishi Motors Corp. announced that production at a plant in central Japan will be halted from Monday to Friday this week due to a component shipment delay caused by Shanghai’s pandemic restrictions. The plant manufactures vehicles such as the Outlander sport utility vehicle, which is exported to the United States.

Fears of a larger outbreak have pushed up demand and prices for common household supplies. According to the National Bureau of Statistics, prices for fresh vegetables surged by 17% on an annual basis in March, while fruit prices increased by 4.3% and flour costs increased by 4.6%. On the other hand, airfares and tickets to tourist attractions have decreased. As a result of Russia’s invasion of Ukraine, gasoline prices have risen by 25% worldwide.

The State Council, China’s cabinet, issued a statement on Monday urging local governments to ensure the smooth distribution of medications and other critical commodities while battling the virus.

According to a statement on its official WeChat social-media account, it also requested unhindered transportation of energy, raw materials, and other production-related supplies. According to the notification, local governments were also advised not to block highways, air and sea transport lanes without legal authority, and not to impose unreasonable travel restrictions on trucks and people.

The European Union Chamber of Commerce in China has urged government to reassess pandemic control policy as international companies cope with transportation, production, and supply chain delays. About half of the 391 German companies questioned recently said Covid-19 restrictions had “completely disrupted or severely impacted” their supply-chain activities in China, according to the business advocacy organization.

The business lobby said in a letter to Chinese Vice Premier Hu Chunhua on Friday that China could allow positive cases with mild or no symptoms to be quarantined at home, focus on fully vaccinating the population, and allow the use of mRNA vaccines in China as a booster dose, as reported by The Wall Street Journal and confirmed by the chamber.

The Omicron variant is posing new challenges that, as described in a letter from Jörg Wuttke, the chamber’s president, “seemingly cannot be overcome by applying the old toolbox of mass testing and isolation. “And the social and economic costs of applying increasingly stringent measures to achieve this are rapidly mounting.”

Business Asia
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