Shanghai, widely hailed as China’s commercial capital, has become the biggest victim of the mainland’s aggressive zero-Covid strategy. Having kept new cases in single digits for much of 2021, a spike in infections saw the port city enter lockdown in late March, as part of the central government’s hard-line mandate to stymie community transmissions. The city endured for five long weeks, but saw its efforts go in vain, as its final exit from lockdown earlier this week was delayed due to persistent community transmissions. Due to the spread of the highly infectious Omicron variant of the Covid-19 virus, dozens of other Chinese cities still remain in lockdown as well. Cebr’s early estimates shed some light on the potential losses to Chinese output, with calculations based on available data showing a decline of 0.3 percentage point in March alone, due to losses in trade.
With recent data on the trade value of imports and exports in Shanghai unavailable, we created an indicative estimate for the total value of trade in Shanghai via nowcasts, before adjusting for shipment volume – which has seen declines peaking at 30% compared to pre-lockdown levels – , for the month of March, when partial restrictions in Shanghai were announced. As such, Cebr’s estimates reveal that the total value of trade stood at US$36.7bn in March 2022, significantly down on US$43.2bn yielded in July 2019. Our headline estimate assumes that Shanghai’s contributions to China’s GDP still remains at 2020 levels, at 3.8%, and utilises the fact that trade made up slightly over a third of China’s output in 2020. Given that lockdown measures came in full swing at the end of March and continued into April, we expect the losses to be much more severe for the first month of Q2.
Supply-chain disruptions have been chronic ever since countries started to emerge from the pandemic, with demand far outstripping supply. In the period between May and November 2021, bottlenecks in the supply-chain resulted in containerised exports declining by 24.5% in the US, resulting in export losses amounting to US$15.7 billion. Yet, China’s targeted lockdown system, which has resulted in lockdowns in Shanghai, along with other major Chinese cities key to supply-chains, have exacerbated these issues. Restrictions have led to severe delays at the Port of Shanghai, resulting in massive congestions as container ships are unable to unload their cargo. Shipping experts estimate that around 3,000 ships are stuck outside Chinese ports with a further 6,000 ships stuck in congested areas across the rest of the world, meaning a grand total of 20% of the world’s shipping fleet is stuck. As long as Chinese leadership remains adamant on eradicating community transmissions entirely rather than adopting a ‘living with Covid’ strategy like many other states, these issues are set to persist, to the detriment of the Chinese economy, and the rest of the world. A key question arises as to when supply-chain issues will end, with these issues compounding the inflation problem faced by many states, harking back eerie echoes of the supply problems in the 1970s. Though it is unlikely that we will see shortages to the extent seen almost half a century ago, such problems will persist until targeted lockdowns in China stop becoming habitual. With cases having already been seen in more than half of the 37 municipalities and provinces in China since the turn of the year, there is hope that perhaps the end may be near. Given the prevalence of cases in the mainland since the turn of the year and the assumption that no other mutated variant of coronavirus sprouts up (à la Omicron), we expect lockdowns in China to slowly fizzle out by the end of Q2 2022. From then, we’d expect a slow recovery to take place, as establishing a constant flow is a time-consuming process, and showing arrythmia time and again. Given that the 1970s supply shortages were not resolved for a couple of years (see Cebr’s founder Douglas McWilliams’ related piece on this here), it is likely we’ll see a similar phenomenon taking place in today’s world, with a recovery in mid-2023, granted no other supply shocks present themselves.
Pushpin Singh, Economist Email firstname.lastname@example.org Phone 020 7324 2850
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