What we know about the economic impact of China’s Covid spike
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To get Covid-19 testing in Changchun City, northeast China’s Jilin region, done by a man, a father holds a child high to a tent window.
Future Publishing | Future Publishing | Getty Images
BEIJING — China’s latest Covid-19 outbreak could hit first-quarter gross domestic product by at least half of a percentage point, Citi analysts predicted in a report Tuesday.
In the last few days, mainland China has seen its worst Covid outbreak since the initial height of the pandemic in early 2020 — when the economy contracted.Due to the transmissible variant of omicron, the latest surge in cases has caused some manufacturing centers across the country, including the one that is currently under investigation, to stop or limit their production.
Citi estimates that 16.7% of GDP is concentrated in the most affected areas.
The analysts stated that economic loss could be occurring this time. We believe that the tightened quarantine and lockdown could detract 0.5 to 0.8ppt from GDP growth in Q1 if there are no policies.
Mainland China had 1,860 Covid confirmed cases Tuesday. That’s down from more than 3,500 new cases a day earlier.There have been no new deaths in the country, but there are still many new cases. still far lower than in other parts of the world, such as Europe.
Analysts have been prompted by Beijing’s zero Covid policies to warn of growing drags to the second largest economy in the world.
Picture that is not even
Bank of America Securities’ China equity strategies team reported Tuesday that they believe the Omicron Wave presents both opportunities and risks for China.
The analysts believe that China could prepare for reopening its borders if the pandemic is controlled well. They warned that the “omicron” wave could cause serious disruptions to global supply chains and slow down China’s GDP growth in the short term.
According to the researchers, local factories have shown little impact on chip, auto, and apparel production, as well as beer. According to the report, the supply chain for Android smartphones could be one of the most affected. However, as with other industries production can be moved to different locations.
Autos: The analysts stated that, “according to channel check, a few Shanghai-based names experienced greater disruption while BYD’s Shenzhen factory is currently operating normally as of the 14th of March.”
CNBC reached out to BYD for comments but they did not respond immediately.
All ports and terminals at Shenzhen (Yantian, Chiwan) have been informed that they are operating as usual.
The lockdown and production suspension measures announced by Shenzhen and Dongguan — two manufacturing hubs in the export-heavy province of Guangdong — will last only about a week.
On Tuesday, economic data were reported for February and January. came in well above expectations,The spokesperson from the National Bureau of Statistics stated that the virus’s impact would be mostly at the local level.
Francoise Hung, senior economist at Euler Hermes (a subsidiary of Allianz), said, “March could be a completely different picture, depending on how much time the restrictions in Shenzhen or Jilin remain for.” It might be a temporary blip in data if it lasts only for one to two weeks.
Jilin, a northern Chinese province that receives the most daily new patients from Covid waves, has been hardest hit by the latest Covid wave. It has also banned traveling to China from Monday and built emergency hospitals.
Citi says that Jilin, Changchun’s capital, is an auto-manufacturing center. However, its contribution to China’s GDP is 0.65%. This is less than Dongguan’s 0,95% share and Shenzhen’s 2,73%, respectively.
Targeted zero-Covid policy
China’s zero-Covid policy has been in place. This includes travel restrictions, swift lockdowns of office buildings and neighborhoods to prevent outbreaks. Individuals with travel histories that are linked to confirmed cases in Beijing may be required to quarantine for up to a week.
However, the policy’s implementation has not been targeted.
On Tuesday, for example, Shanghai’s government officials said that the city does not need to be locked down to contain the epidemic. While Shenzhen has ordered a halt to overall production, remote work and other measures, most ports in the city remain open.
Maersk, the world’s largest shipping firm, stated in a statement that “all ports and terminals in Shenzhen [Yantian] and Chiwan are currently operating as normal.” The statement said that vessel operations, yard handling, and gate-in/out are all included.
However, the lockdown caused local warehouses to close and trucking services to be hampered. The company stated that there was no operational disruption at other Chinese ports but the landside transport efficiency had been decreased.
In an online statement, the Yantian port stated Monday that it was operating normally.
Tuesday’s announcement by the Shenzhen government saw the Liantang Port being closed at Hong Kong’s land border. Shenzhen confirmed several Covid cases in freight drivers crossing that border. There have not been any announcements about other port closings.
Recent lockdowns could continue, and the “economic pain” could extend into the third quarter, according to a Moody’s Analytics report Tuesday.
Do lockdowns still have a chance of working?
The report stated that China may have been early enough to realize that various lockdowns would reduce COVID-19 case numbers to zero by March. This is in contrast with Hong Kong where there has been an ongoing surge of cases since February and no similar lockdown.” However, China’s zero COVID position is facing the greatest test.
China began rolling out a nationwide vaccination campaign in late 2020 — with doses largely from Sinopharm and Sinovac. According to the National Health Commission, 1.24 billion people were fully vaccinated as of Monday. This includes 211.62 millions people older than 60.
According to the commission, 65% of those with severe Covid had not been vaccinated.
China’s National Health Commission Tuesday said that the share of Covid cases with the BA.2 subvariant has increased in recent months.
The new variant is more transmissibleIt’s not known if it is more dangerous than other strains.
— CNBC’s Holly Ellyatt and Michael Bloom contributed to this report.
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