BEIJING – Facing the worst outbreak of Covid-19 to date, China has imposed an increasing number of mass quarantines, strict lockdowns and border controls. The measures may work so far, but official data released on Monday shows they are inflicting heavy losses on the world’s second largest economy.
The Chinese economy expanded by 4.8 percent in the first three months of this year compared to the same period last year. That pace was barely faster than the last three months of last year, and it also masked a looming problem.
Much of this growth was recorded in January and February. In the past month, economic activity has slowed with the shutdown of Shenzhen, the technology hub in the south, then Shanghai, the country’s largest city, and other important industrial centers. The shutdowns left assembly lines suspended, workers on the ground, truck drivers trapped and ports crowded. They have confined hundreds of millions of consumers to the home.
The National Bureau of Statistics said Monday that retail sales, a crucial sign of whether consumers are spending, fell 3.5 percent in March from a year ago. Factory output grew 5 percent, a rate that was slower than the pace recorded in the first two months. Imports, which were advancing in the first two months of the year, eased slightly last month, in part due to transportation hurdles.
The slowdown that began in March is expected to worsen this month, with restrictions imposed on more regions. This is bad news for China’s leaders, who have set a target of “about 5.5 percent” growth for this year.
Premier Li Keqiang called for a “sense of urgency” a week ago in telling local officials to limit the effects of the Covid lockdown on the economy. China’s central bank acted on Friday to help commercial banks increase lending to boost economic growth.
For the world, the Covid lockdowns in China could fuel inflation by further disrupting the supply chains that many manufacturers depend on, driving up the cost of manufacturing and transporting goods. A stagnant China will also import less than other countries, whether it’s natural resources like oil and iron ore or consumer goods like cherries or designer handbags.
“Speaking of the impact of the epidemiological outlook on Shanghai and Shenzhen, we cannot forget that they are both important parts of the entire supply chain and will certainly have an impact on the entire full circle of the entire Chinese economy,” Yao Jingyuan, a former chief economist of the National Bureau of Statistics who is now a Cabinet advisor, said, At a press conference last Wednesday.
Executives from the auto industry and the technology sector, two of China’s largest employers, have begun warning in recent days of a crippling disruption to their nationwide operations if Shanghai, in particular, cannot reopen soon. The city manufactures many high-tech components that are essential to many supply chains.
“Shanghai is a hub for international auto companies – if the center fails, the whole system will not work,” Cui Dongshu, secretary-general of the China Passenger Car Association, said in a phone interview.
Lockdowns are crippling local economies
By April 11, 87 of China’s 100 largest cities had imposed some form of movement restrictions, according to Gavekal Dragonomics, an independent economic research firm that tracks lockdowns. These ranged from restricting who could enter or leave the city to full lockdowns as in Shanghai, where most residents were not allowed to leave their homes even to buy food.
Yang Degang, the manager of a factory that makes plastic molding machines in Zhangjiagang, 70 miles from Shanghai, was forced to halt operations after his town imposed a lockdown on Wednesday.
Even before the lockdown, the authorities had imposed restrictions that prevented the movement of trucks. This means that Mr. Yang was not able to get the components on time to build his machines and was unable to deliver the finished equipment to many factories and ports in shutdown situations.
Mr. Yang said he did not know when he could reopen. “Zhangjiagang is under tremendous pressure,” he said. “I worry about losses, but there is no other way.”
But as more and more cities impose lockdowns – Taiyuan, the center of China’s coal industry, joined the list last Thursday – the stricterness of the municipal lockdown has eased a bit lately. From the end of March through last Wednesday, the number of large cities that were severely closed down fell to six from 14, according to Javekal. The share of China’s economic output represented by these cities shrank to 8 percent from 14 percent.
Beijing has ordered local governments to help trucks reach their destinations and take other measures to protect the economy from harm during the lockdowns. Nio, an electric car maker in Hefei, central China, halted vehicle assembly on April 9. Hefei has not been closed, but the suppliers of critical components have been in Shanghai, Jilin and other places. But by last Thursday, the company had acquired enough auto parts to resume limited production.
Workers are facing difficulties
Many workers are struggling as well. Truck drivers, for example, face the constant risk of weeks-long quarantines that often go unpaid even as interest payments on their trucks continue to accrue.
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Yu Yao, a truck driver delivering vegetables and fruits from Shandong Province to Shanghai, is one of many Chinese truck drivers stranded by the ever-tightened epidemic control measures. He has been trapped in Shanghai for over three weeks.
Mr. Yu came to Shanghai on March 16 to deliver vegetables to the market. He was still in town three days later when authorities identified him as having been in close contact with an infected person at the market. The police ordered him to be immediately placed in quarantine. So he parked his truck near a highway and started waiting.
He’s been waiting ever since. No one brought him to quarantine. He lacks the travel permit now required to drive a truck in Shanghai during the lockdown. He and four other drivers without permits slept on the floor sharing bread for three weeks.
“We can’t get off the highway, every exit is guarded. We just want to go home,” said Mr. Yu. “I couldn’t get enough food that day, and my body couldn’t eat it anymore.”
Survive in exports
One area of the Chinese economy continued to grow in the first three months of this year: exports. Chinese factories have captured a much larger share of global markets during the pandemic, including a 14.7 percent jump in exports in March compared to last year. Many multinational companies continue to rely on large networks of component suppliers in China.
But as China continues to disrupt production by imposing strict lockdowns without warning, at least a few importers in the West have begun to look for supplies elsewhere. Jake Phipps, founder of Phipps & Company, an American importer and distributor of home furnishings that sells to hotel and apartment developers, said that in the past two years he’s been shifting many orders away from China.
He started buying kitchen cabinets from Vietnam and Turkey, vinyl floors from Vietnam and India, and stainless steel sinks from Malaysia. Repeated shutdowns in China have delayed many shipments, including shutting down part of Ningbo, near Shanghai, which delayed its shipment of plumbing supplies last month. He added that many clients are now afraid to rely on China due to tariffs, geopolitical tensions and questions about China’s potential role in the origins of the coronavirus.
“The reliability got me moving, and the convenience of customers who didn’t want to order from China,” said Mr. Phipps.
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