Nearly 400 million people in 45 cities in China are in lockdown, while the war in Ukraine and sanctions against Russia, which further fragment the world economy, increase the risk of a major global recession. Investors, however, do not yet seem to take seriously the long-term economic consequences if the harsh measures Beijing has taken to combat the Covid-19 pandemic continue, CNN reports.
Dramatic scenes in China with people beaten on the street by policemen dressed in white suits and pets collected by the authorities to be sacrificed are just a few consequences of China’s very strict strategy to fight the Covid-19 pandemic, the so-called policy. ” zero-Covid ”.
In total, Chinese cities that are partially or completely locked down account for 40% of China’s annual GDP, the world’s second largest economy, or $ 7.2 trillion, according to information released by Nomura Holdings.
“World markets may still underestimate the real impact, as all the focus is now on the Russian-Ukrainian conflict and the US Federal Reserve raising interest rates,” said Lu Ting, chief economist at Nomura. .
The worst is the quarantine in Shanghai, a city of 25 million people and a major industrial and export center of China, which was originally expanded indefinitely but now authorities hope can be lifted by Wednesday. Quarantines have led to a lack of food and access to health care and even the euthanasia of pets for fear of spreading the virus.
In addition, the small staff working in the largest port in the world can no longer cope with the high workload. The port of Shanghai, which in 2021 handled more than 20% of China’s freight traffic, is more or less “frozen”.
Food stored in containers without refrigeration systems continues to rot since they have been stuck in the port. Freight that should enter the port is blocked at sea terminals for at least 8 days before it can be processed and transported to its destination, almost 2 times more than when the authorities were just beginning to impose new restrictions.
All cargo flights that were supposed to enter or leave Shanghai have been canceled and more than 90% of the trucks carrying imports and exports of goods have been decommissioned.
Products made in Shanghai for foreign markets account for 6% of China’s exports, according to government statistics for 2021. The closure of factories inside and around the city further disrupted the supply chain.
The Sony, Apple and Tesla factories in Shanghai have been closed. World GDP could fall by 5%
Shanghai factories that made Sony, Apple, Quanta – the largest supplier of laptops that also produce MacBooks – have ceased operations in the city. Tesla has shut down its Shanghai Giga plant, which produces about 2,000 electric cars a day.
Tesla officials said they hope to be able to restart the business on Monday, ending the longest production break since they opened the Shanghai plant in 2019. The electric car maker is expected to launch another 50,000 units from the factory. who were forced to close it, according to Reuters.
In a report released last week, the International Trade Organization warned that the fragmentation of the global economy due to the war in Ukraine and the sanctions imposed on Russia could lead to a 5% drop in world long-term GDP.
In the case of China and US investment, this scenario is highly unlikely, given the deep financial ties between Beijing and Washington. “These savings are still very intertwined,” Hirson said. “This integration is not easy to reverse because it would be very costly for the United States and the global economy.”
However, leaders of the US economy believe that a disconnect is already underway. Oaktree co-founder Howard Marks wrote in late March that “the pendulum has swung back to local sources [de producţie]”And moved away from globalization.
Blackrock CEO Larry Fink shared Marks’ sentiment in a letter to the company’s shareholders. “The Russian invasion of Ukraine has put an end to the globalization we have experienced for the last 30 years.”
Speaking at the Atlantic Council last week, US Treasury Secretary Janet Yellen said the United States was looking closely at Russia’s political and economic ties with China. “From now on, it will be increasingly difficult to separate economic issues from broader considerations of national interest, including national security,” Yellen said.
Yellen hopes that a “bipolar separation” between China and the US can be avoided, “that the world’s attitude towards China and its willingness for deeper economic integration could be affected by China’s reaction to our call for firm action against Russia.”
At the same time, a third of China is blocked by quarantine and the economy is suffering. The latest measures to prevent the spread of coronavirs in China will cost at least $ 46 billion due to the drastic reduction in production, equivalent to 3.1% of GDP, according to a study by the Chinese University of Hong Kong.
Analysts no longer believe that China’s goal of 5.5% economic growth in 2022 is realistic. The World Bank has warned that if China’s strict policies continue, GDP growth could fall by up to 4%.
China’s economic problems are coming at a politically precarious time. Chinese President Xi Jingping will seek a third term as the country’s leader this fall, given that Chinese leaders have so far failed to hold office for more than two terms.
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