Here’s How China’s Economic Blockades Affect the Rest of the World

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  • Crude and coal purchases were also running well behind last year’s schedule.
  • Chinese demand for jet fuel is projected to drop by 25,000 barrels per day from a year earlier, a 3.5% fall, according to the International Energy Agency.
  • The logjam is preventing crucial deliveries from reaching companies, stalling production in key industrial regions, with the impact likely to continue rippling across the economy even as cities move to loosen lockdowns.

Since early 2020, China’s lockdowns to contain the country’s largest Covid outbreak have wreaked havoc on the economy, suspending output in major areas like Shanghai and curtailing spending by millions of people trapped at home as reported by Supply Chain Brain.

Virus in the community 

The restrictions are intended to eradicate any trace of the virus in the community, but they’ve also pressured everything from manufacturing and trade to inflation and food prices.

Premier Li Keqiang has repeatedly warned of risks to economic growth, telling local authorities on Monday they should “add a sense of urgency” when implementing existing policies.

The government is holding firm to its Covid Zero approach for now: President Xi Jinping said this week that “prevention and control work cannot be relaxed.”

But it’s a strategy economists say will push growth down to 5% this year, below the official target of around 5.5%.

Here’s a deeper look at how the lockdowns are impacting critical sectors across the world’s second-largest economy.

Commodities Hit

China posted sluggish commodities imports in March, as elevated prices due to the war in Ukraine and tightening virus restrictions took their toll on demand.

Crude and coal purchases were also running well behind last year’s schedule.

The IEA previously expected 10,000 barrels per day of growth.

The number of daily flights in China, as averaged over seven days, has fallen below the lowest level seen in 2020, with less than 2,700 active flights on Tuesday, according to Airportia, a real-time flight tracker.

The researcher also predicted a rise in aluminum inventories.

Imports in the first quarter fell 14% from the same period last year, according to shipping data, and private companies are spurning offers to use once-highly coveted slots at state-owned receiving terminals.

Port Congestion 

Shanghai’s city-wide lockdown has created congestion at the world’s largest port, with queues of vessels building there and at other stops handling diverted shipments.

The number of container ships waiting off Shanghai as of April 11 was 15% higher than a month earlier, according to Bloomberg shipping data.

A shortage of port workers in Shanghai is slowing the delivery of documentation needed for ships to unload cargoes, according to ship owners and traders.

Meanwhile, vessels carrying metals like copper and iron ore are left stranded offshore as trucks are unable to send goods from the port to processing mills, they said.

Data on Wednesday also showed the lockdowns having a notable impact on imports, which fell 0.1% on year in March, the first contraction since August 2020.

Manufacturing Woes

China’s purchasing managers surveys show manufacturing contracted in March, with small and medium-sized firms particularly shaken by operational snags.

The Caixin index, based on surveys of smaller, export-oriented businesses, dropped to its worst level since the start of the pandemic two years ago.

The restrictions are also causing major headaches for China’s 17.3 million truckers who keep store shelves full while also connecting the nation’s ports with its manufacturing hubs.

Trucks dominate China’s local transportation, hauling about three-quarters of total freight, according to data from the Ministry of Transport.

But Covid Zero orders are creating difficult conditions for the truckers themselves, as drivers have been hampered by the need to undergo compulsory mass testing being conducted in cities like Shanghai and the need to show negative Covid results at multiple checkpoints.

Tech Disrupted

Some technology companies have suspended production as China’s restrictive policies weigh on a sector already contending with a shortage of components.

Most major tech manufacturers — from Semiconductor Manufacturing International Corp. to Taiwan Semiconductor Manufacturing Co. and iPhone maker Foxconn Technology Group — froze operations in the early days of Shanghai’s outbreak.

Many have since resumed after setting up closed-loop systems.

Logistics jams are constricting shipments of components, draining inventories to the point where some manufacturers including Pegatron, Wistron Corp. and Compal Electronics Inc. are down to just a few weeks’ stocks, consultancy Trendforce estimates.

The ongoing global supply crunch could worsen if local manufacturing is disrupted, constraining stock of computers and gaming consoles to smartphones, servers and electric vehicles.

Automotive Pain 

Overall passenger vehicle sales slid 10.9% last month, suggesting pressure in the massive car market.

Some automakers are hitting production snags because of lockdowns.

Tesla Inc.’s Shanghai factory has been shut down since March 28 because of restrictions in the city.

The plant typically produces more than 2,000 cars every day, according to an estimate earlier this month from Dan Ives, an analyst at Wedbush Securities Inc. Volkswagen AG was also forced to suspend production in Shanghai this month, while Chinese EV upstart Nio Inc. said Saturday it halted production and delayed deliveries because many suppliers had to close shop.

Auto parts maker Robert Bosch GmbH said Monday it shuttered two of its factories in China and operated closed-loop systems at two others, adding that it was seeing “temporary effects on logistics and supply chain sourcing.”

Construction Snags

Excavators, a leading indicator for the construction industry, had a nearly 64% drop in domestic sales in March compared to the same month a year ago, indicating that the industry is under stress.

Last month, China’s housing market slumped even more: According to preliminary data from China Real Estate Information Corp, the 100 largest enterprises in the debt-ridden property market suffered a 53 percent reduction in sales from a year ago. This year’s drop was the most precipitous.

According to a study published this week by David Qu, a Bloomberg Economics economist covering China, steel rebar inventories in China implies construction activity “may have changed to a lower gear.”

Inflation Risks

Food prices have risen as a result of the restrictions, which may jeopardize China’s capacity to secure enough grains for the year as the restrictions obstruct China’s crucial spring planting season.

According to figures released this week by the National Bureau of Statistics, fresh vegetable prices increased 17.2 percent year over year in March, compared to a 0.1 percent dip in February. Farmers in some sections of China’s northeast, which produces more than a fifth of the country’s grain, have faced limitations that prevent them from plowing their fields and planting seeds.

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Source: Supply Chain Brain