Will China’s policy of zero Covid grinding factories stop the world? | China

Huawei’s chief executive broke his ranks to warn that China’s tough policy on zero Covid could cause “huge losses” for the technology industry, exposing the country’s economy as well as the global supply chain to greater risk.

“If Shanghai cannot resume production by May, all technology and industrial players that have supply chains in the area will be completely shut down, especially the automotive industry,” said Richard Yu Chengdong, head of Huawei’s consumer and automotive division. WeChat publication. “This will have severe consequences and huge losses for the entire industry.”

Comments from Huawei, a stronghold of China’s technology industry, underscored growing tensions as the country tries to eliminate Covid, concluding Shanghai. As the blockade continues at the key financial center and home of the world’s largest container port, economists have warned of high costs for both Asia’s largest economy and the global supply chain.

Richard Yu Chengdong at the Huawei 2020 Developer Conference. Photo: VCG / Getty Images

In recent days, Beijing has repeatedly reaffirmed its plan to deal with Covid, which has come under tight scrutiny as the number of cases continues to rise in Shanghai despite a heavy blockade. In a news release on state television on Wednesday, President Xi Jinping urged his staff not to facilitate pandemic control.

“Perseverance is a victory. Stick to people first and foremost, life above all else … dynamic zero Covid, grasp the details of epidemic prevention and control initiatives, “he told himself, adding that it is necessary to overcome paralyzing thoughts, war fatigue, mental coincidences and grants. ” mentality ”.

But economists have warned that the ongoing blockade in Shanghai – if it lasts only this month – will cost China’s most populous city and key financial center a 6% loss of GDP, a 2% loss to the nation as a whole.

This in turn will lead to a drop of nearly 1% of China’s economic growth target to 4.6%, according to Iris Pang, chief economist for Greater China at Dutch bank ING. Last month, Premier Li Keqiang set China’s annual growth target at “around 5.5%.”

Last month, researchers at the University of China in Hong Kong said blocking China would likely cost at least £ 35 billion a month, or 3.1% of GDP in lost economic output. The authors also estimated that imposing a full-scale blockade on a major city such as Beijing or Shanghai would reduce national real GDP by 4%, of which 7% is due to spillover effects.

Alicia Garcia-Herrero, a Hong Kong-based chief economist for the Asia-Pacific region at Natixis, said 40 percent of China’s GDP was already “in some form of blockage.” “GPS data shows that China is already halfway to the mobility lost during Covid’s first outbreak in Hubei province in 2020. Since April 12, monthly mobility in China has fallen by 29% compared to 2019, with 24 provinces decline. “

In February 2020, the reduction in mobility was 66%, which collapsed in 29 provinces, Garcia-Herrero said. “The situation is particularly worrying for manufacturers in Shanghai, Jiangsu and Jilin – the key centers for cars, electronics and semiconductors.

“We predict that for each month of blockade in China, there will be a 0.5% reduction in China’s annual GDP,” she warned. “Beijing says it wants economic growth, but everything is its priority after all – either to destroy the virus or to allow the economy to grow. You can’t have both. “

The blockade has huge consequences for the global economy, contributing to strong inflationary pressures by stifling the supply of goods. Reports this week say nearly 500 bulk carriers have docked near Shanghai as the port struggles to cope.

2022 is a decisive year for the ruling Communist Party. His president is expected to extend his rule during the 20th Party Congress later this year. ING expects local authorities as well as the central government in Beijing to step up their easing measures, increase fiscal support and ease monetary policy to support economic growth. The bank is revising China’s GDP growth rate to 4% on an annual basis of 5% for the second quarter of this year.

The transfer effect of China’s blockade is being felt in other parts of the global supply chain. Ever since Chinese cities such as Shanghai and Jilin came under blockade, shares of car and semiconductor manufacturers have been hit hard. “This will affect consumers elsewhere,” Garcia-Herrero said.

This week, Pegatron, a key iPhone maker, halted operations at two subsidiaries in Shanghai and nearby Kunshan. The Taiwanese company said it was “actively cooperating with local authorities” and would try to resume operations as soon as possible. It followed the practice of Foxconn, another major supplier, which halted operations at China’s Shenzhen Technology Center in southern Guangdong in early March, but later resumed “fundamental operations” later that month.

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Troubles in Shanghai have added another level of uncertainty to the industry, which has been under pressure since the start of the Covid pandemic. “The global supply chain is so fine-tuned that any disruption to a major mall like Shanghai will have a big impact around the world,” said Stephen Carr, commercial director at Peel Ports, one of the UK’s largest port operators.

“Although we do not currently see a direct impact on our ports, we are already processing inquiries from companies that want to use the port of Liverpool as an alternative to traditional southern ports to avoid any potential congestion further down the line.

Port shortages and disruptions leave businesses in a worrying scenario: depletion of goods.

“If the government prolongs the blockade, the risk of supply chain disruptions will increase and companies may run out of stocks … [If] “Guangdong, which contributes 13% and 15% of China’s car and chip production, is also blocking, and the supply shock will only get worse,” Garcia Herrero said.

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