China’s elevated Covid cases may not hit the economy as hard as feared
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Covid Prevention and Control Measures in Shanghai: On March 16th 2022, customers can pick up their fast food orders outside of McDonald’s.
Hector Retamal | Afp | Getty Images
BEIJING — As China tackles its worst Covid-19 outbreak since the initial phase of the pandemic, consumption looks set to be hit the hardest while factories find ways to keep producing.
Wednesday saw a decline in confirmed new cases for Mainland China.
This is the lowest number of locally transmitted cases since Friday when there was an even lower daily total of 476. According to National Health Commission data, 1,226 were reported. Mainland China is not reporting any deaths related to the Covid case wave, although those figures are well below other major nations.
Dan Wang, a chief economist of Hang Seng China based in Shanghai, said that the omicron wave was “more similar” to last year’s power crisis episode. This was in reference to the sudden power shortages that occurred at factories during fall. temporarily affected production.
Wang anticipates that factories will be affected this time, for a maximum of two weeks. This is compared to early 2020, when some areas took several weeks to reopen. She said that there is a chance this could happen again. If that happens, it could have a long-lasting impact. However, if we only feel pain for a month it wouldn’t matter.
Foxconn, the Apple supplier said Wednesday that after suspending its local operations on Monday, it would resume them. partially resumed production in ShenzhenFactory campuses also offer housing for employees.
Shipping giant Maersk said Wednesday in an online customer advisory that terminals in major Greater China ports “remain business as usual including vessel operation, yard handling and gate-in & out.”
The company did however note that certain depots used for goods transport through Shenzhen were closed on Tuesday while the warehouses remain closed during the week.
Maersk explained that the stricter control of Shenzhen’s roads and covid testing for truck drivers will mean trucking services there could be “severely affected” by 30 percent.
Analyse by Bank of America Securities this week also showed a muted impact from CovidOn supply chains including semiconductors and autos.
Consumer spending suffers from more restrictions
Although supply chain shocks have been relatively mild so far, the main economic impact will be on consumers spending, according to Bruce Pang of China Renaissance’s macro- and strategy research.
Covid’s impact is not only on service industries that depend on people and social gatherings (especially catering), but it also suppresses people’s expectations and confidence for spending. People won’t be able to afford money when they aren’t sure what the next pandemic is going to bring, but they’ll save wisely and not spend money they don’t want.
According to him, retail sales are expected to rise by around 7% in the coming year.
Since the outbreak of the pandemic, consumer spending has been slow. The data released for January and February this week revealed some interesting results. retail sales grew by 6.7% during those two monthsComparable to the same time a year earlier, an important increase from December and beating analyst’s expectations.
Chinese authorities usually respond to Covid cases with travel restrictions and quarantining contacts or cases confirmed to be in their possession. Travel restrictions are imposed on the basis of exposure to high- or medium-risk areas, which may sometimes only be one building or an office block.
State media reported that Wednesday’s mainland additions included three more high-risk areas, bringing the total to 23, This number had dropped to zero in the last two weeks, according to reports.
Economic factors
China’s economy is not just about consumption and the impact of Covid. China’s growth had already slowed before this latest round of omicron cases. The enormous real estate sector is struggling after Beijing tried to lessen developers’ dependence upon debt. Meanwhile, commodities prices are on the rise, especially since Russia invaded Ukraine in February.
“Factories also close down due to different reasons. Hang Seng China’s Wang stated that it’s not only Covid. He noted that many factories had shut down before this latest outbreak because of high raw material prices and tight price control on final products, such as food and gasoline.
Inability to lower prices for consumers and rising production costs would result in profits being cut or completely eliminated.
Tesla suspended production at its Shanghai factoryReuters reported on Thursday and Wednesday that they were not giving any reason. CNBC reached out to the electric car manufacturer for comments but they did not respond immediately.
This week, Tesla CEO Elon Musk warned in a tweet that “Tesla & SpaceX are seeing significant recent inflation pressure in raw materials & logistics.”
— CNBC’s Sam Shead contributed to this report.
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