No lockdown let up in China as damaging economic data rolls in

Date: Friday, May 6, 2022
Source: Splash 247

Shanghai officials have claimed, once again, that they are overcoming the worst of the covid crisis, six weeks after the China’s largest city went into lockdown.

In Beijing, meanwhile, president Xi Jinping has vowed to continue with his zero-covid policy despite the deleterious effects it has had on the national economy this year.

“Our prevention and control policies can withstand the test of history, our measures are scientific and effective. We have won the battle to defend Wuhan, we can also win the battle to defend Shanghai,” Xi said yesterday.

The Caixin purchasing managers’ index, a closely-watched indicator for assessing the state of the economy, plummeted to 36.2 in April from 42 in March, according to a survey released on Thursday. A reading below 50 indicates contraction, while anything above that gauge shows expansion.

The services sector accounts for more than half of the nation’s GDP and over 40% of its employment.

The nearly six-point decline in services activity in April was second only to the collapse in February 2020, when China’s economy came to a near standstill as it battled to contain the initial coronavirus outbreak that started from Wuhan.

Looking at the numbers, Peter Sand, chief analyst at container shipping platform Xeneta, told Splash: “This confirms what we already know even if real data on this is hard to get by. China manufacturing is hit hard by the rolling covid lockdown in main hubs, be it Shenzhen or more recently and significantly Shanghai.”

Trying to put a dollar figure to the trade hit from the ongoing Shanghai lockdown, UK risk modelling company Russell Group estimated yesterday the closure of the giant city had cost global trade $28bn so far.

Nationwide, about 327.9m people in more than 40 cities are affected by the latest lockdowns, Nomura’s chief China economist Ting Lu estimated Wednesday.

That’s about 31% of China’s GDP, down slightly from last week’s 35.1% share, he said.

The Asian Games, due to take place in Hangzhou near Shanghai, were postponed today, the latest victim of Beijing’s zero-covid drive.

Shanghai authorities said today they have brought China’s worst outbreak of covid under effective control.

The number of new covid infections in China’s financial hub had been on a “continuous downward trend” since April 22, the city’s vice major Wu Qing said.

However, for many of the city’s 25m citizens still under lockdown, Wu warned a lifting of confinement measures was unlikely very soon.

“We cannot relax, we cannot slack off: persistence is victory,” he said.

The number of new covid cases in Shanghai and across the country has fallen in the last few days, while Shanghai authorities have added more businesses to a whitelist for resuming production. A measure of road freight — reflecting how easily goods and parts can move around the country — has improved as well, albeit still far below normal levels.

After a full opening up of Shanghai it will take at least four weeks for operations at the city’s port, which boasts the world’s highest container throughput, to get back to normal, analysts have repeatedly warned during this latest lockdown impasse.

A noticeable box shift has been seen in Ningbo-Zhoushan to the south of Shanghai, which registered a throughput in excess of 3m teu last month, up by more than 10%, and setting a new monthly record.

Splash reported earlier this week on the effects lockdowns were having to both Chinese and international ship repair yards. Braemar ACM data has added some extra detail, pointing out that in the capesize sector, vessels in shipyards have more than doubled from the previous month, currently standing at 9.8m dwt, primarily a result of longer visits at several Chinese yards.

Multiple other data points depict the broad impact from covid restrictions in China with clear implications for various shipping segments.

Power generation, for instance, rose in the first two months of the year, but slowed to zero growth in March, according to figures cited by Larry Hu, chief China economist at Macquarie. He said this week he expects a drop in power generation in April.

In the real estate sector, Hu noted that lockdowns also make it “physically impossible to buy property,” sending sales in the top 30 cities down 54% in April from a year ago.

Many in dry bulk in particular are pinning their hopes on a big stimulus package from Beijing, something president Xi has hinted at in recent days. It cannot come soon enough with so many indicators pointing to a slowing economy. For instance, the number of heavy trucks sold in April was down 77% year-on-year to 45,000, the lowest point since 2007.

On the consumer front, companies like Starbucks are reporting a widespread impact from Covid.

In the quarter ended April 3, the coffee giant said 72% of the 225 Chinese cities it operates in experienced omicron outbreaks. The company has more than 5,600 stores spread across eastern and central China, its second-largest market.

Starbucks said as of Tuesday, a third of its stores remain temporarily closed, or only offer delivery or takeout.

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