Chinese consumers face greater economic damage from COVID lockdowns


China faces a temporary hit to factory production and a lingering consumer slump amid the toughest COVID-19 controls since the initial outbreak two years ago.

Business statements and high-frequency indicators suggest a drop in production and spending in March after China imposed shutdowns in key cities like tech hub Shenzhen and Changchun, a hub for automakers. Official activity data will not be available for several weeks.

As President Xi Jinping pledged to reduce the economic damage of his “Zero COVID” strategy, China took steps to end the shutdown of Shenzhen within a week and avoid putting Shanghai under full lockdown despite a outbreak of COVID cases in the city. This suggests an attempt by officials to minimize the fallout, especially for factories.

For consumers, the hit to confidence could last longer as people remain wary of travel and shopping, and with unemployment already on the rise.

“Consumption may still be subdued and only pick up slightly once the outbreak is contained,” said Liu Peiqian, China economist at NatWest Group Plc. The services sector and tourism will struggle to recover fully as a sustained and synchronized easing of travel policies is unlikely, she added.

Goldman Sachs Group Inc. estimates that districts designated as medium- and high-risk virus areas — meaning they face some form of restriction — now exceed 30% of China’s gross domestic product. If a four-week lockdown were imposed in those areas, annual GDP would be cut by 1 percentage point, bank economists including Hui Shan wrote in a note on Wednesday.

Here’s a look at what early signs tell us about the likely economic fallout from COVID controls in China:

fall of feelings

An index measuring activity in China’s emerging industries fell to 49.5 in March, below the 50 level that separates expansion from contraction, according to survey results released by China Logistics Information Index (Beijing ) Co. and a research institute linked to the Ministry of Science. and technology. COVID curbs have caused supply chain crunches and the impact of the COVID outbreak has been the worst since February 2020, according to the report.

The headquarters of the People’s Bank of China, the central bank, in Beijing | Reuters

The survey covers companies in seven high-tech industries such as green technologies, biotechnology, high-end equipment manufacturing and new energy vehicles.

A separate survey of sales managers from various sectors showed that a third of companies were affected by the resurgence of the virus in March, according to data firm World Economics. Still, the numbers show that much of the business activity has or will soon recover from past COVID outbreaks. The services sector was hardest hit, with an index measuring staffing levels falling to its lowest level in 18 months.

Discontinued operations

The shutdown in Shenzhen has brought Apple Inc.’s supplier Hon Hai Precision Industry Co., known as Foxconn, to a halt, although it was allowed to partially resume last week, although the city was still barring residents to leave their home. In Changchun, which remains under lockdown, automakers like Toyota Motor Corp. and Volkswagen AG stopped production.

At least 28 companies listed on stock exchanges across the continent – including producers of electronic components, petrochemical firms and suppliers of environmental equipment – announced a suspension of trading activities in March. While many did not disclose the direct impact, a few said the halted production lines contributed half of their total revenue. Three of the companies had restarted part of production on Tuesday.

Goldman Sachs analysts said the companies most affected in the five provinces of Jilin, Shanghai, Guangdong, Jiangsu and Shaanxi were those in industries such as chemical raw materials and chemicals, transportation equipment, including automobiles, and wood and wood products.

The logistics industry is another major concern, with Goldman Sachs analysts expecting sector and port disruptions to be “potentially much worse” than what was seen in early 2021 and the summer. last.

Delivery to nearly half the country was restricted from March 17, leaving online sellers reeling from plummeting in-store visits and orders, as well as an increase in refund requests, according to a article published by e-commerce information exchange platform Paidai on Saturday.

empty carts

Metro ridership in Shenzhen fell to zero last week as public transport networks in the southern tech hub were disrupted and 17.5 million residents were ordered to limit travel. The number of passengers using the subway in Shanghai has also declined rapidly.

Decline in tourism

Hospitality and tourism have suffered as many regions have banned residents from traveling in order to contain the spread of the virus. Hotel occupancy rates fell in the first two weeks of March in Shanghai, Shenzhen and Jilin province, according to the latest figures from hotel data and analytics firm STR.

An electronic display showing Chinese GDP indices on a street in Shanghai, China on October 16.  |  Reuters
An electronic display showing Chinese GDP indices on a street in Shanghai, China on October 16. | Reuters

Across China, the average hotel occupancy rate fell to 44% in the seven days to March 12, from 52.9% two weeks earlier and 59% for the same period last year, according to STR digits.

The catering sector is also bearing the brunt of social distancing rules. Business volumes recorded by the restaurant management system of Delicious No Wait (Shanghai) Information Technology Co. fell 44% in the week of March 18 compared to the last week of February, the analysts wrote. from the China International Capital Corporation in a Monday note. Delicious No Wait covers more than 100,000 restaurants, according to the company’s website.

Quiet cinemas

Moviegoers fell sharply as cinemas faced some of the most draconian COVID controls. Box office revenue in the first three weeks of March was 710 million yuan (13.5 billion yen) nationwide, down 58% from the same period last year. last, according to Bloomberg calculations based on figures from ticketing company Maoyan.

“We believe that the cost of the Zero-Covid strategy will increase significantly as its benefits diminish, making it much more difficult for Beijing to meet its GDP growth target of ‘around 5.5%’ for 2022.” , wrote analysts at Nomura Holdings Inc., including Lu Ting. in a note this week.

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