Shanghai shutdown clogs economic engine

Shutdown measures implemented due to rising Covid-19 cases in Shanghai, China’s largest city and one of Asia’s most important financial and trading hubs, are disrupting logistics and chains of supply, which are also the cornerstone of the global economy. than the country’s economy.

The sudden increase in cases with the spread of the Omicron variant in Shanghai since mid-March has left local authorities in a dilemma between controlling the outbreak and meeting basic needs in the city of more than 26 million people. .

The phased shutdown announced on March 28 due to cases triggered by the Omicron variant in the city has been extended indefinitely across the city as cases have not decreased.

The extension of the closure measures has led to difficulties in the distribution of food, medicine and basic necessities, as well as in the provision of care services.

Even basic needs have become difficult for residents of the city, where many foreigners and senior, mostly white-collar Chinese officials live.

Shanghai residents, who can’t leave their homes, are turning to online shopping, while supplier companies can’t meet demands due to a lack of delivery couriers and other logistical problems.

Although Chinese online shopping platforms such as Alibaba, JD.com and Meituan are trying to strengthen their warehouses in Shanghai and increase the number of employees and distributors, they cannot operate at full capacity due to anti-virus measures.

The fact that the city, which is one of Asia’s and the world’s major financial, commercial, manufacturing and transport hubs, has been closed to the outside world for weeks, is negatively affecting supply chains in many sectors around the world. country and abroad.

– Production disruptions

Factories in the city, home to large-scale automotive, semiconductor and electronics production facilities, had to halt production due to shutdown measures.

US automaker Tesla and China’s largest chipmaker International Semiconductor Manufacturing Company (SMIC) have halted production.

Factories were able to resume work after authorities in Shanghai allowed them to ‘whitelist’ 666 companies, including Tesla and SMIC, to continue production in the manufacturing sector affected by the shutdown measures, allowing them to continue their activities in a closed circuit.

However, due to quarantine measures, manufacturers still cannot predict how they will source raw materials and parts, and how they will be able to get their products out of the factory and into the market.

– Logistic congestion

Strict quarantine measures are disrupting road transport, which forms the bulk of China’s logistics industry.

Intercity roads closed due to epidemic measures in Shanghai and other cities are drastically reducing the amount of goods transported overland in the country, while transportation costs are rising due to extended delivery times.

Many city and state governments require truck and lorry drivers entering their areas to submit a negative test. Long lines of trucks form due to controls at the entrances and exits of the city and the state.

Drivers passing through Shanghai and Cilin province in the northeast, where lockdowns are in place, are required to stay in quarantine for two weeks so they can travel to other cities.

The Road Vehicle Freight Flow Index, which shows the volume of lorry and lorry traffic on the roads, fell 22.4% in the first week of April compared to the same period of the previous year.

The transport volume decreased by 69.7% in quarantined Shanghai and by 86.7% in Cilin province.

According to data from the China Transportation and Purchasing Federation, freight transportation costs rose 30 percent in early April from a year earlier, due to reduced capacity and long transportation times.

– Bottleneck in the port of Shanghai

The disruption of truck and truck services has also caused a bottleneck in the port of Shanghai, where more than 50% of container traffic is shifted overland.

Although the port, which is the main transfer point for land, sea and air logistics, continues to operate despite closed-loop epidemic protection measures, the lack of vehicles to transfer goods means that many ships waiting at the port without unloading their cargo.

The European Union Chamber of Commerce in China has announced that cargo traffic at the port of Shanghai is estimated to have decreased by 40% compared to normal conditions.

Air cargo traffic was also significantly reduced during the shutdown. According to data from flight tracking site VariFlight, 98% of scheduled flights to Shanghai’s Hongqiao and Pudong airports from April 6 to 12 have been canceled.

Pudong Airport alone provides 50% of China’s air transport capacity.

– Global supply chains are negatively impacted

The effects of logistics congestion affecting Shanghai and other major production centers in the surrounding Yangtze River Delta are negatively impacting supply chains at home and abroad.

According to a survey by the European Union Chamber of Commerce in China, 30% of European companies said they had been affected by supply disruptions.

In the survey conducted by the American Chamber of Commerce in China, it was determined that 57.3% of businesses were negatively affected by congestion.

After the shutdown measures began to be implemented in Shanghai on March 28, many companies producing electronics, semiconductors and automobiles for the global market had to scale back or shut down altogether.

Yu Qingdong, head of consumer electronics and automotive division of Chinese technology giant Huawei, shared on WeChat: “If Shanghai cannot resume production by May, all technology and industrial companies whose supplies depend on the city, especially the auto industry, Shut down.” made his appreciation.

– Effect on the economy

According to the report prepared by economist Song Ching of the Chinese University of Hong Kong, it is estimated that the city’s income will decrease by 61% and the total national income will decrease by 8.6% due to the logistical barriers created by the closing month in Shanghai and the increase in operating costs.

According to first quarter data released by the National Bureau of Statistics (UIB), retail sales fell 3.5% in March. This is the first contraction since August 2020.

While gross domestic product (GDP) grew by 4.8% in the period covering January, February and March compared to the same period a year earlier, it remained below the annual growth rate of “about 5.5%”.

The tangible impact of the Shanghai shutdown on the economy is estimated to be felt during the second quarter of the year, which covers the months of April, May and June. .

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