Shanghai lockdown threatens to shake up global economy

Its GDP is equivalent to that of Poland, and its port is the world’s first container port: Shanghai’s isolation is undermining China’s economy and threatening global supply chains.

Facing the worst wave of Covid-19 in China since the start of the epidemic, the country’s economic capital has been in full or partial lockdown for two weeks.

Even if no one in Shanghai regrets the death, where the vast majority of infections are asymptomatic, the authorities have decided to keep 25 million residents in their homes, despite the very high cost to the economy.

Thousands of heavy vehicles are stranded at the gates of the municipality: drivers entering the city must exit themselves to comply with quarantine for at least two weeks, wherever they go next time in China.

Hence the lack of drivers, which affects the operation of the port, even if the authorities claim that so far “less than ten” ships a day are waiting on the shelf to be able to moor.

“But the problem is that because of the restrictions imposed on truck drivers, (the port) is not really working,” Bettina Chen-Behanzin, vice president of the EU Chamber of Commerce, told AFP.

“I heard that the volume of cargo traffic in the port of Shanghai is decreasing by 40% per week. It’s a lot,” she says.

– No workers, no raw materials –

The effect is starting to be felt across China, where delivery delays on e-commerce platforms are on the rise, especially for imported goods. Some factories are forced to look for new suppliers.

But the impact threatens to cause a stir internationally as well, with the port of Shanghai alone providing 17% of China’s maritime tonnage. Any disruptions could only slow down the trade of the world’s largest exporter of goods.

Industrialists note that repeated imprisonment from one end of the country to the other seriously harms their activities.

“Not all professions can work from home,” notes Jason Lee, founder of wheelchair company Megalicht Tech, whose factory in Shanghai is closed.

“Workers cannot enter the factory,” he said. “And since the raw materials come from other provinces, they also cannot go to Shanghai.”

The threat of the epidemic is putting pressure on the government’s growth target, which is set at 5.5% this year, already the lowest in 30 years.

At least 23 major cities, representing 22% of China’s GDP, have introduced full or partial containment measures, according to Nomura bank.

“The cost of a Covid zero strategy will rise significantly as its benefits diminish, especially as exports shrink,” said economist Lou Ting at Nomura.

– Adapt to survive –

Entrepreneurs adapt to survive.

“Our core business is down 50%,” said Gao Yongkang, general manager of Qifeng Technology in Quanzhou (East).

His company can no longer supply textile products to its regular customers. Therefore, it moved into the production of full medical suits, which has become a booming sector.

The rest managed to change suppliers.

“It’s a little more expensive and a little less efficient, but we manage to meet our needs,” said Shen Shengyuan, deputy general manager of New Yifa Group, a baby diaper manufacturer.

To help the hardest hit sectors, the government announced this week a deferral of social security contributions for catering, tourism and transport.

But industrialists consider the use of conclusions excessive, given the low mortality of the Omicron variant.

“Does the Zero Covid strategy still work in the current environment?” asks Eric Zheng, president of the American Chamber of Commerce in Shanghai.

“That’s a big question, especially when you consider its economic cost.”

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