China’s Covid lockdowns hit more of the country beyond Shanghai, Beijing
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Ting Lu, Nomura’s Chief China Economist, estimated Wednesday that the lockdowns have affected 327.9 millions people across 40 US cities. This is Suzhou’s closed shopping center with red banners pleading for the fight against the virus.
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BEIJING — While the bulk of China’s new Covid cases are in Shanghai and Beijing, data show the impact of business restrictions is more widespread.
According to an EU Chamber of Commerce China survey, almost 60% of European companies in China said that they had cut 2022 revenue projections due to Covid controls. The chamber reported that more than half were cut by between 6% and 15% on Thursday.
Monthly surveys of Chinese companies released over the past week revealed that sentiment among service and manufacturing businesses dropped in April, the worst since February 2020 when the pandemic hit. The purchasing managers’ index (official and third-party) showed further declines in business activity since March.
Caixin’s services PMI was released on Thursday. It showed a decrease to 36.2 from April. It’s still well below the 50 line, which indicates expansion or contraction.
A press release stated that future production expectations were slightly higher. However, there are “some worries about the time it might take to completely contain this virus and return to normal business conditions.”
Similar results are shown by other data from China.
According to Larry Hu (chief China economist at Macquarie), power generation rose during the first two months, but then slowed down to zero in March. According to Hu, there will be a decline in power generation by April.
Hu said that the huge real estate industry is affected by lockdowns, which makes it impossible for people to own property. Sales in the top thirty cities fell 54% in April compared with a year earlier.
Consumer-facing companies include StarbucksCovid is having a significant impact on their lives.
According to the coffee giant, 72% of the cities in China that it has 225 stores were affected by omicron infections during the April 3 quarter. More than 5600 coffee shops are located in China’s second-largest region, eastern and central China.
Belinda Wong (Chinese Starbucks Chairperson) stated that this “more infectious” variant of mobility restrictions has led to lockdowns and other restrictions being imposed more quickly and are more relaxed. The majority of stores that are still open can do so according to “strict safety protocols” that hinder traffic and operation.
Starbucks stated that as of Tuesday, one third of its locations were temporarily closed or offer take-out or delivery. According to Starbucks, the company currently has suspended guidance for the rest of its fiscal year.
Since March, mainland China has faced its worst Covid outbreak since early 2020 — using the same zero-Covid strategy of swift lockdowns that had helped the country quickly return to growth back then. From the north province of Jilin, to the southwest, there are many manufacturing areas. southern city of ShenzhenYou were one of the first ones to have to lock them down.
However, restrictions can vary greatly depending on where they are placed. Shanghai, China’s largest city,It remained essentially unchanged locked down for all of April.The capital of Beijing began tightening travel and business restrictionsThe month ends with a control of a sudden increase in Covid cases.
With China’s two largest cities by GDP under Covid controls for the five-day holiday that ended Wednesday, national tourism revenue for the period only recovered to 64.68 billion yuan ($9.95 billion) — 44% of pre-pandemic levels, official figures showed.
Yue Su is principal economist for The Economist Intelligence Unit.
She said that “Lacking confidence in the private industry will reduce investment and job creation, which will take longer to recover even if China offers more stimulus.”
China reported better-than-expected first quarter GDP growth of 4.8%From a year ago. Retail sales declined in March while the unemployment rate in the nation’s largest cities reached a record high.
American household goods giant American household products are being held hostage by lockdowns that affect “consumers ability to get into stores, grocery shops, and department stores.” Procter & GambleIn an earnings conference last month, she stated this. Online shopping has been severely constrained by the inability of delivery.
According to the company, the value of its Chinese products didn’t increase in the first three months and “with continued lockdowns and difficulties in China, we would expect April be flat or negative.”
When contacted Wednesday by CNBC, P&G said it did not have an update to share.
Nationwide lockdowns
Shanghai’s experience with prolonged lockdown may help cities organize their food and services better, but Su of the EIU said that it would be difficult for poor governments to continue the zero-Covid policy in Shanghai without transfer from the central government.
Zhengzhou, one of the smaller cities that tightened Covid controls this week, ordered its residents to work at home, and schools to go online, until Tuesday. Foxconn is a significant iPhone manufacturer in Zhengzhou. The company did not immediately reply to requests for comment.
If they comply with the Covid regulations, such as keeping workers inside a bubble, factories, like Zhengzhou’s, can usually maintain at most limited production.
Yum ChinaKFC and Pizza Hut, the nation’s largest restaurant chain, warns of strong headwinds for the second quarter. These would lead to an operating loss. The company stated that large cities like Shanghai, Fuzhou, Suzhou and Tianjin were locked down partially in April.
There are hopes for a turning point
Ting Lu, Nomura’s chief China economist, estimated Wednesday that the lockdowns have affected 327.9 Million people across the country.
This is 31% of China’s GDP. It’s slightly lower than last week’s 35.1%, he stated.
While the number of Covid cases has dropped in Shanghai, and throughout the country in general, Shanghai authorities have also added businesses to their whitelist. This will allow them to resume production. A measure of road freight — reflecting how easily goods and parts can move around the country — has improved as well, albeit still far below normal levels.
Macquarie’s Hu stated Wednesday that “the worst is likely behind us.” The economy should be on the rebound by May. “The month of May should see the economy on the mend. Politburo meeting [of top Chinese leaders] last FridayIt seems that top leaders are not ready to let go of the 5% GDP bottom line.
Stocks of China (known as A shares) rose slightly Thursday. This was their first trading day after Friday because of the holiday.
Lei Meng, UBS Securities’ strategist for Securities, said that the execution and implementation of policy relaxations will have a greater effect on the stock exchange.
After a 4% year-on-year increase in first-quarter A share earnings, the firm expects travel restrictions and other disruptions to cause second-quarter earnings to decline — the expected low point for the year.
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