BEIJING – Facing the worst Covid-19 outbreak to date, China has enforced a growing number of mass quarantines, strict lockdowns and border controls. The measures may still work, but official data released Monday shows they are taking a grim toll on the world’s second-largest economy.
The Chinese economy grew by 4.8 percent in the first three months of this year compared to the same period last year. That pace was barely faster than the last three months of last year, and it also covered up an looming problem.
Much of that growth was recorded in January and February. Last month, economic activity slowed as Shenzhen, the technology center to the south, and then Shanghai, the country’s largest city, and other major industrial centers were closed. The lockdowns suspended assembly lines, grounded workers, imprisoned truck drivers and snapped ports. They have locked hundreds of millions of consumers in their homes.
Retail sales, a crucial sign of consumer spending, fell 3.5 percent in March from a year ago, the National Bureau of Statistics said Monday. Factory output grew 5 percent, a rate that was slower than the pace recorded in the first two months. Imports, which had progressed rapidly in the first two months of the year, fell slightly last month, partly due to transport problems.
The slowdown that started in March is expected to worsen this month, with even more regions coming under restrictions. This is bad news for China’s leaders, who have set a target of “about 5.5”. per cent” growth for the year.
Prime Minister Li Keqiang called for “a sense of urgency” a week ago by telling local officials to limit the effects of Covid shutdowns on the economy. China’s central bank took action Friday to help commercial banks borrow more to boost economic growth.
For the world, China’s Covid shutdowns could fuel inflation by further disrupting the supply chains many manufacturers rely on, raising the costs of making and transporting goods. A sluggish China would also import less from other countries, whether for natural resources such as oil and iron ore or for consumer goods such as cherries or designer handbags.
“When we talk about the impact of the pandemic outlook on Shanghai and Shenzhen, we must not forget that they are important parts of the entire supply chain and that it will certainly have an effect on the whole circle of the entire Chinese economy,” says Yao Jingyuan, a former chief economist of the National Bureau of Statistics who is now a cabinet adviser, said at a news conference last Wednesday.
Executives in the auto and tech sectors, two of China’s largest employers, have begun warning in recent days of a crippling disruption to their nationwide operations if Shanghai, in particular, cannot reopen soon. The city produces many high-tech components that are critical to many supply chains.
“Shanghai is a hub for international car companies – if the hub fails, the whole system will not work,” Cui Dongshu, the secretary general of the China Passenger Car Association, said in a telephone interview.
Lockdowns cripple local economies
As of April 11, 87 of China’s 100 largest cities had imposed some form of movement restriction, according to Gavekal Dragonomics, an independent economic research firm that tracks lockdowns. These ranged from restricting who can enter or leave a city to complete lockdowns such as in Shanghai, where most residents are not allowed to leave their homes, even to buy food.
Yang Degang, the manager of a factory making plastic molding machines in Zhangjiagang, 70 miles from Shanghai, was forced to shut down operations after his city imposed a lockdown on Wednesday.
Even before the lockdown, authorities had imposed restrictions preventing the movement of trucks. This meant that Mr Yang was unable to get the parts in time to build his machines and he was unable to deliver finished equipment to many factories and ports under lockdown.
Mr Yang said he didn’t know when he could reopen. “Zhangjiagang is under tremendous pressure,” he said. “I’m worried about losing, but there’s no other way.”
But as more cities are imposing lockdowns — Taiyuan, the center of China’s coal industry, joined the list last Thursday — the severity of municipal lockdowns has eased somewhat lately. From late March to last Wednesday, the number of major cities with strict lockdowns dropped from 14 to six, Gavekal said. The share of China’s economic output represented by these cities shrank from 14 percent to 8 percent.
Beijing has ordered local governments to help trucks reach their destinations and take other measures to protect the economy from damage during lockdowns. Nio, an electric car manufacturer based in Hefei in central China, stopped assembling cars on April 9. Hefei was not locked up, but critical component suppliers were in Shanghai, Jilin and elsewhere. By Thursday, however, the company had obtained enough auto parts to resume limited production.
Employees face difficulties
Many employees are also having a hard time. For example, truck drivers are constantly in danger of weeks of quarantine, for which they often go unpaid, even as the interest payments on their trucks continue to expire.
The latest on China: important things to know
Yu Yao, a truck driver who delivers fruit and vegetables from Shandong Province to Shanghai, is one of many Chinese truck drivers stranded due to increasingly strict epidemic control measures. He has been detained in Shanghai for more than three weeks.
Mr. Yu came to Shanghai on March 16 to deliver vegetables to a market. Three days later, he was still in the city when authorities identified him as having close contact with an infected person at the market. The police ordered him to be quarantined immediately. So he stopped his truck at a highway and started waiting.
He’s been waiting ever since. No one picked him up for quarantine. He does not have a travel permit that is now required to drive a truck during the lockdown in Shanghai. He and four other unlicensed drivers spent three weeks sleeping on the floor and sharing bread.
“We can’t get off the highway, every exit is guarded. We just want to go home,” Mr Yu said. “I couldn’t get enough food recently and my body can’t handle it anymore.”
Survive on export
Part of the Chinese economy continued to grow in the first three months of this year: exports. Chinese factories have captured a significantly larger share of global markets during the pandemic, including a 14.7 percent increase in exports in March from a year ago. Many multinationals remain dependent on large networks of component suppliers in China.
But as China continues to disrupt production by imposing strict lockdowns without warning, at least a few importers in the West are beginning to look elsewhere for supplies. Jake Phipps, the founder of Phipps & Company, a US home furnishings importer and distributor that sells to hotel and apartment developers, said he had moved many orders out of China in the past two years.
He started by buying kitchen cabinets from Vietnam and Turkey, vinyl floors from Vietnam and India and stainless steel sinks from Malaysia. China’s repeated lockdowns have delayed too many shipments, including a lockdown in a part of Ningbo near Shanghai that delayed its shipment of plumbing supplies last month. Many customers are now wary of relying on China over tariffs, geopolitical tensions and questions about China’s possible role in the origin of the coronavirus, he added.
“Reliability has touched me and the comfort of customers who do not want to order in China,” said Mr. Phipps.
Li You research contributed.