The blow to the Chinese economy from the new, graduated is expected lockdown in Shanghaia port city of 26 million inhabitants of enormous importance to Chinese GDP.
Chinese authorities have decided to impose a lockdown, the most widespread in two years since the Wuhan pandemic broke out, to bring an outbreak in Shanghai and conduct mass tests.
The lockdown will take place in stages, in two phases. The economic zone Pudong of Shanghai, as well as nearby areas will remain closed from Monday to Friday, while mass tests will be conducted. In the second phase of the lockdown, the huge area of ​​the center west of the Huangpu River, will launch its own five-day lockdown on Friday.
Analysts estimate that the economic impact will be huge, especially for businesses that depend on consumer spending. However, other economists say the city’s industry can be largely resilient, mitigating threats to global logistics supply.
According to Bloomberg, the measure could cost China up to $ 46 billion per month or bring a reduction of 3.1% in GDP. In fact, they say that these numbers could double if the restrictive days are extended to other cities.
Among the sectors that are expected to be hardest hit are those of services and small businesses, as residents will not be able to leave their homes during the curfew.
“COVID is lowering people’s confidence and expectations for spending,” said Bruce Pang, head of macroeconomic and strategic research at China Renaissance Securities. He also noted the impact on industries that rely on personal and social gatherings, especially in the catering sector.
As a major economic and trade hub, Shanghai contributes 3.8% to China’s GDP. It is also the second richest city, after Beijing, according to the latest available data from the National Bureau of Statistics.
Economists have downgraded annual forecasts for China as cases rise. The blow has already begun to show in the financial results of companies as well as in the stock market indices, at a time when the Chinese government is trying to minimize the effects.
It is also estimated that the damage to consumption may be greater, which could jeopardize the estimate for an annual growth rate of 5.5%.
Even before the lockdown was announced in Shanghai, Nomura Holdings Inc. warned that China’s economy is facing the worst pressures since the pandemic began. Bank analysts sounded the alarm bell saying markets should be worried about a possible slippage in second-quarter growth as they downgraded quarterly forecasts for the rest of the year.
According to Bloomberg Economics, “the lockdown in Shanghai and the measures that led to it will have a direct impact on the Chinese economy,” while fears are also expressed about the negative climate that is being created. So far, the lockdown allows the continuation of operations in banks and ports. “Anything more than the current plan could put the Chinese economy at greater risk.”
More optimistic analysts estimate that China can reduce the damage if the lockdown does not last more than three weeks.
Shanghai’s port, the largest in the world, is still open 24 hours a day, according to local media reports. Chinese chipmaker Semiconductor Manufacturing International Corp. resumed normal operations, but Tesla Inc. suspended production on Monday for four days.
What economists point out is that the climate would improve if the government gave an accurate roadmap for how it intends to proceed in the near future, noting that perhaps a zero-tolerance policy is not productive:
“The main uncertainty is that China’s fight against COVID is not clear. “The zero-tolerance policy may not be sustainable in the long run in terms of financial costs and people’s daily lives,” said Zhang Zhiwei, chief financial analyst at Pinpoint Asset Management Ltd.
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