As the clerk shouted the numbers, Narin shook his head. When asked what worried him, he sighed. “The same thing that worries everyone else – the new lockdown in China.” India is a major producer of drugs, but 70 percent of its active pharmaceutical ingredients – the biologically active ingredient of any drug – come from China. The vague lockdown on COVID-19 since the end of March in Shanghai, home to the world’s largest container port, threatens these supplies. Narain’s concerns reflect growing concerns that restrictions imposed by authorities on the city of 25 million people could disrupt international supply chains for everyone, from drugs to electric vehicles, hampering global economic recovery and even global economic recovery. fully open after two years. So far, China’s economy has suffered the brunt of a record rise in coronavirus outbreaks in the country’s financial hub. However, analysts warn that Shanghai’s unparalleled role in world trade means that the lockdown could have serious consequences for the rest of the world, especially if it lasts much longer. Shanghai and the surrounding areas are one of China’s largest manufacturing hubs. They are based on imported components that enter the country through the port of the city, through which the final products are exported. The effect of this tripartite dependence on the city is beginning to be seen. Tesla closed its Giga plant in Shanghai on March 28 and has not yet reopened the plant, which produces about 2,000 electric cars a day. Nio’s Chinese rival suspended production on Saturday, citing rising cases in Shanghai and Jiangsu and Jilin provinces, where it has factories. Electric car company Tesla has been forced to suspend production at its Shanghai plant due to the coronavirus epidemic and the city’s lockdown [File: David Paul Morris/Bloomberg] (Bloomberg) The Shanghai Container Index, which is already declining due to the war in Ukraine, continues to decline, signaling a decline in Shanghai exports, said Bruce Pang, head of macroeconomic and strategic research at Hong Kong-based China Renaissance Securities. “The worst outbreak of coronavirus in China could lead to delays and higher prices, which could halt the recovery and further increase global inflation,” Pang told Al Jazeera. So far, the impact of the lockdown in Shanghai on global supply chains has been limited, said Julian Evans-Pritchard, China’s senior economist at Capital Economics, a London-based consulting firm. Many factories continue to operate using what is known as a closed loop system – where workers stay in their workplace through the lockdown to reduce the risk of infection. “Most of the factory workers are migrants with limited safety nets, who will tolerate it to keep their jobs,” Evans-Pritchard told Al Jazeera. “A large number are already living in dormitories provided by employers even in normal times.” Chinese manufacturers also have healthy stocks they can rely on to overcome short-term lockdowns, he added. But Pang and many other analysts believe that the current restrictions in Shanghai will last at least until June. “If the closure takes too long, then it will lead to product shortages both inside and outside China,” Pritchard-Evans said. The ominous signs are already appearing. An April 7 report by experts from Hong Kong-based Spanish financial services company BBVA shows that freight traffic in the Shanghai port has sunk during the lockdown, while the congestion of ships waiting outside the port is increasing. BBVA researchers also estimate that there is a real chance – they have given it a 25 percent chance – that Shanghai will not be able to neutralize the current wave by June. China can mitigate the effects of the Shanghai lockdown on world trade by shifting to other ports, said Wang Huiyao, founder and chairman of the Center for China and Globalization, a Beijing-based think tank. “You have to remember – China has other huge ports that can still serve the world,” Wang told Al Jazeera. Indeed, seven of the 10 largest container ports in the world are located in China: Shanghai, Ningbo-Zhoushan, Shenzhen, Guangzhou, Qingdao, Hong Kong and Tianjin. Most of these cities have had different lockdowns in recent months. However, China saw a sharp increase in exports in 2021, even amid a global shortage of semiconductors. “China’s choice of gateways to the world has made it possible,” Wang said.
Emerging economies at risk
However, Shanghai bears a heavy burden as a container port: it alone managed 20 percent of China’s freight traffic in 2021. “If the Shanghai port stops operating, it will be difficult for other nearby ports to fill the gap due to its enormous capacity,” BBVA researchers Betty Huang and Xia Le wrote in their report. “Until then, the global supply chain will immediately feel the pain of the Shanghai lockdown.” Emerging Asian economies such as Vietnam and Cambodia could be hit hardest by their dependence on Chinese manufacturing inputs, Capital Economics warned in recent reports. Chinese components account for 24% of Vietnam’s gross value added in manufacturing. But others will not be invulnerable: goods imported directly or indirectly from China account for more than 20 percent of Japan’s total imports and more than 15 percent of US markets abroad. At a time when the pandemic has already made many nations and companies reluctant to rely too heavily on Chinese supply chains, the Shanghai lockdown is also reviving questions about the economic rationale for the country’s “zero COVID” strategy. According to the zero-tolerance approach, China puts entire cities in lockdown when new cases occur, despite the fact that the vast majority of the world moves away from strict controls and learns to live with the virus. “The pandemic has highlighted the need for greater diversification and resilience of the supply chain,” said Pritchard-Evans. “The latest developments in China are just another reminder of that.” While Beijing has promised to continue its efforts to eradicate it, there are indications that authorities are increasingly concerned about the economic and social impact of draconian restrictions. Authorities in Shanghai on Monday announced a slight easing of restrictions to allow more freedom of movement for residents in areas where the virus is under control. According to the three-tier disease control system, residents in areas where no cases have been reported for 14 days are allowed to leave their homes as long as they follow the health protocols and remain in their sub-region. Residents in areas that have been without a case for seven days are allowed to collect food deliveries or go for a walk at a specified time and location. Wang said the Shanghai crisis could also offer China’s leaders the opportunity to compare the mainland’s strategy with that of Hong Kong, which avoided a city-wide lockdown even at the height of a catastrophic COVID-19 wave. earlier this year, when he had the world. higher mortality rate from the virus. “It’s a story of two cities,” said the Beijing analyst. “And the approach that works best will shape China’s future policy.”
