Chinese Virus Cases Rise, Raising Risk of Trade Disruptions – Press Enterprise
By JOE McDONALD
BEIJING (AP) – Chinese authorities on Tuesday tightened antivirus controls at ports, raising the risk of trade disruptions after some auto and electronics factories shut down as the government battles coronavirus outbreaks.
Stock prices in China and Hong Kong fell a second day after the shutdown of Shenzhen, a tech and financial hub adjacent to Hong Kong to the south, and Changchun, an auto hub to the northeast, on Monday. Bus services to Shanghai, China’s business capital and largest city, have been suspended.
China’s case numbers are low compared to other major countries. But authorities are enforcing a “zero tolerance” policy aimed at keeping the virus out. It has temporarily closed major cities to find any infected person.
The restrictions come at a time when the global economy is being squeezed by Russia’s war in Ukraine, rising oil prices and weak consumer demand.
“We can think of no greater risk to the global economy, other than nuclear warfare, than the risk of a COVID outbreak in China crippling industrial production,” said Carl B. Weinberg of High-Frequency Economics in a report. “Countless manufacturing supply chains run through China.”
Economists say smartphone makers and other industries can use factories and suppliers in other parts of China for now. A greater threat looms, however, if business is disrupted at the ports of Shenzhen, Shanghai or nearby Ningbo.
They connect Chinese factories, which assemble most of the world’s smartphones and computers, as well as a large proportion of household appliances and other goods, with foreign component suppliers and customers. A month-long slowdown at Yantian Port in Shenzhen last year caused thousands of shipping containers to backlog and sent shockwaves through global supply chains.
“The risk here is whether COVID is found in Yantian port,” said Iris Pang, chief economist for China at ING. “If the port has to be suspended, a lot of electronic imports and exports will be affected.”
There were no signs of major disruption, but port operators announced restrictions on face-to-face contact with shippers and seafarers.
The agency that manages the Port of Shanghai closed windows where customers submit documents and said that function would go online. There was no indication that cargo handling or other operations were affected.
The port of Lianyungang, north of Shanghai, said it would bar foreign seafarers from disembarking ships or using the city to change crews.
Shenzhen has suspended cross-border freight traffic at the Liantang Crossing to Hong Kong. It said the Man Kam To crossing will be limited to handling fresh and live food to ensure Hong Kong is adequately supplied.
“The lockdown in Shenzhen poses significant risks for supply chain disruptions,” Rajiv Biswas, chief Asia economist at IHS Markit, said in an email. The risk of a global disruption “would escalate if authorities in Shanghai also decide to implement a lockdown.”
The number of new cases reported in mainland China on Tuesday more than doubled to 3,507. Almost 90% of them with 3,076 cases in Jilin Province, where Changchun is located.
Hong Kong, which reports separately, had 26,908 cases as of Monday.
Yantian Port tried to reassure customers that operations are normal. A statement on his social media account vowed to make “every effort to ensure the smoothness and stability of this ‘port supply lifeline'”.
China, where the pandemic began in downtown Wuhan in late 2019, became the first major economy to recover after Beijing shut down factories, shops and offices to contain the disease.
This year, the ruling Communist Party’s growth target is 5.5%. If achieved, that would be well below last year’s 8.1% expansion. But forecasters think it’s aggressive at a time when the construction sector, which supports millions of jobs, is in a slump due to a crackdown on housing sector debt.
Leading politicians promise tax cuts for entrepreneurs and higher spending on building public works. This could help stimulate consumer spending and cushion the economy from a slowdown in manufacturing.
The latest surge in infections, attributed to a fast-spreading variant dubbed the “stealth” Omicron, calls Beijing’s pandemic strategy into question.
All shops in Shenzhen and Changchun except those delivering groceries, fuel and other necessities have been ordered to close. Bus and subway connections have been discontinued. Millions of residents have been asked to undergo a virus test.
If you want to go to Shanghai, a city of 24 million with car factories, China’s largest stock exchange and offices of global corporations, you have to get tested.
On Tuesday, the shutdown was extended to Dongguan, an industrial city of 10.5 million northwest of Shenzhen. The official Xinhua News Agency said all shops except suppliers of food and other necessities had to close until March 21 while authorities tested the entire population.
Elsewhere, the populous eastern province of Shandong had 106 new cases as of Tuesday. Guangdong to the south, where Shenzhen is located, reported 48. Shanghai had nine and Beijing six.
Jilin Province, where Changchun is located, has banned residents from leaving the province and traveling between cities within the province.
Automakers Volkswagen and Toyota, iPhone assembler Foxconn and smaller companies have announced they will shut down production at some factories.
Others, including telecom equipment maker Huawei Technologies Ltd., Apple Inc., General Motors Co. and electric vehicle brand BYD Auto, did not respond Tuesday to questions about how they might be affected.
“The risk of broader lockdowns is increasing,” Bank of America economists said in a report.
Volkswagen AG announced that the factories in Changchun for the VW and Audi brands were closed from Monday to Wednesday.
Toyota Motor Co. said its Changchun factory, which makes RAV4 and Harrier SUVs, ceased operations on Monday.
Shenzhen, a city of 17.5 million people, is home to some of China’s biggest companies, including Huawei, BYD Auto, Ping An Insurance Co. of China and Tencent Holding, operator of the popular messaging system WeChat. Taiwanese company Foxconn, which assembles Apple’s iPhones, has its Chinese base in Shenzhen.
Foxconn assembles some smartphones and tablet computers in Shenzhen, but has moved most of its production out of the city. Other manufacturers have also relocated to cheaper parts of China or abroad. They keep R&D, finance and marketing in Shenzhen — functions that can be handled by employees working from home.
“Manufacturing takes place elsewhere, so unless all of China is affected by COVID, there won’t really be a shortage of certain goods. Phones, for example,” said Pang of ING.
Also, authorities appear to be trying out a “dynamic ‘zero-COVID’ policy,” which still aims to keep the virus out but uses “targeted lockdowns” to try to reduce economic and social costs, said David Chao of Invesco.
“Many see this as a huge COVID risk that could potentially lead to further weakness in China’s economy,” Chao said. “But I think this gives policymakers an opportunity to evolve their pandemic policies.”
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AP researchers Chen Si in Shanghai and Yu Bing in Beijing contributed.
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