Foreign companies remained in Shanghai after the Ukraine-Russian war. But has their patience tested to the uttermost with the city’s near two-month closure?
The Chinese government was resolute about stabilizing its economy until COVID-19 hits Shanghai. Even as the city is a financial hub, officials still put it through a devastating lockdown and insisted on their zero-COVID policy. This sent businesses, both domestic and overseas, into turmoil that reverberated even after the city reopened.
Logan Wright, an analyst at the Rhodium Group, wrote on May 31, “We are seeing China’s leadership abandon long-term economic and political objectives for transitory, politically motivated gains against an indefatigable foe—the Omicron variant of COVID-19.”
Even though Shanghai says it has fully left the closure behind, those who wish to take public transportation to work still need to have a COVID-negative certificate that is valid in 72 hours. Independent community lockdown is still happening, and factories and businesses are no exception.
In addition to disruption to production, is the supply chain woes. Companies may be able to resume their operations as long as officials allow them to. But supply chain takes longer than that to recover.
According to Inside Logistics, “With the city due to fully reopen on June 1, the [Shanghai] port is going to be in overdrive as manufacturers try to fulfill backlogs, with serious knock-on effects around the world.”
Despite Shanghai’s anticipated reopening, Cisco forecasted weak earnings for the coming quarter due to expected congestion in shipping ports and airports, which will hinder both exports and imports of raw materials to China. Not to mention that potential lockdown may return given China’s steadfast adherence to its pandemic approaches.
Nikkei Asia reported on June 2 that Apple has moved some iPad tablet production from China to Vietnam for the first time. The outlet noted Apple has been putting efforts into stabilizing its supply chain by switching to the Southeast Asian country.
For watchers who are counting on China’s economic prospects, data has been uninviting.
According to Voice of America (VOA News), China’s official figures show that total retail sales of consumer goods fell 11.1% year-on-year in April, while industrial added value fell 2.9% year-on-year. They were both the worst performances since the beginning of 2020.
UBS lowered its forecast for China’s economic growth this year from 4.2% to 3%, and JPMorgan Chase lowered its forecast from 4.3% to 3.7%, both significantly lower than China’s official setting 5.5% annual growth target.
Analyst Logan Wright believed it would be difficult for China’s economy to revive back to its pre-Shanghai-lockdown state. Present movement curbs on citizens would take a direct toll in other areas such as production, consumption, employment, and income.
Wright said most foreign investment in China was based on optimism about China’s economic growth. Now, they are concerned about the long-term growth of domestic demand in China.
He wrote, “A significant downgrade of China’s growth expectations could accelerate the debate over diversifying supply chains, particularly as the risk premium in China grows.”