Widespread lockdowns in China akin to the measures just taken in the southern technology hub of Shenzhen could affect half of the country’s GDP.
Authorities on Sunday placed Shenzhen’s 17.5 million residents in lockdown for at least a week amid a surge of COVID-19 infections in the city, an action that Bloomberg Economics said would deal a “direct hit” to Guangdong Province, which accounts for 11 percent of China’s GDP.
As cases jump elsewhere, half of China’s GDP and population would be impacted by the latest outbreak, Australia and New Zealand Banking Group Ltd (ANZ) economists said.
“Previous steps to contain virus flareups left manufacturing unscathed for the most part,” Bloomberg Economics’ Chang Shu (舒暢) and David Qu (曲天石) wrote in a note yesterday.
The lockdown in Shenzhen would hit output in industries such as tech and machinery, which feed into global supply chains, they said.
“The double hit to consumption and output, plus spillovers beyond China raise the stakes in this lockdown,” the economists added.
The Shenzhen move comes as other parts of China try to battle the rapid spread of coronavirus. Shanghai suspended in-person classes and shut intercity bus services, while the northeast industrial center of Changchun — a city of about 9 million people and accounting for about 11 percent of China’s total annual vehicle output in 2020 — was locked down last week.
“More cities may follow the practice of Shenzhen,” Raymond Yeung (楊宇霆), chief economist for Greater China at ANZ, said in a note yesterday, referring to the city’s decision to shut down public transportation and prevent people from leaving or entering.
“If the lockdown is extended, China’s economic growth will be significantly affected,” he said.
While Yeung said that ANZ is not yet revising its forecast for this year, they are “wary” of further restrictions.
ANZ forecast GDP growth of 5 percent for the year, less than Beijing’s target of about 5.5 percent.
Should key provinces along China’s coast and in the northeast follow Shenzhen’s lead and lock down for a week, the economic cost could amount to 0.8 of a percentage point of GDP growth, Yeung said.
Nomura Holdings Inc said the economic costs of China’s “zero COVID” approach are high and market participants might be too optimistic about this year’s growth outlook.
The bank expects GDP expansion of 4.3 percent, well below economists’ consensus forecast of 5.2 percent.
China is facing rapidly spreading clusters spawned by the highly infectious Omicron variant of SARS-CoV-2. Daily new cases jumped to more than 3,300 on Saturday from just more than 300 a week earlier, but locally transmitted cases dropped to 1,337 yesterday.
Shenzhen is home to the headquarters of tech giants like Tencent Holdings Ltd (騰訊) and Huawei Technologies Co (華為).
Apple Inc supplier Foxconn Technology Group (富士康科技集團), a Taiwanese company also known as Hon Hai Precision Industry Co (鴻海精密), has its China headquarters in the area. The company has halted operations in Shenzhen, including at a site that produces iPhones, in response to the lockdown.
Shenzhen is also the second-most important port in China after Shanghai, and processes about 10 percent of the containers shipped from China in any month.
Guangdong’s US$795 billion worth of exports last year accounted for 23 percent of China’s shipments that year, the most of any province, Bloomberg Economics said.
Shenzhen alone had exports of US$303 billion.
“Even if the lockdown is in place for only a short period — our baseline case — the impact will likely last for a few weeks longer due to likely disruptions to supply in the city and the reverberations beyond,” the ANZ economists said.
While “zero COVID” has not led to major economic disruption so far, the restrictions are making the economy “particularly vulnerable to the more contagious Omicron variant,” said Louis Kuijs, Asia-Pacific chief economist at S&P Global Ratings.
“Globally, the economic impact of COVID is declining as governments ease restrictions and many move towards a ‘living with COVID’ approach,” Kuijs added. “However, for China, Omicron is a key risk for domestic demand, output and, possibly, supply chains.”
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