Top NewsUS News

China’s Covid lockdowns are hitting more of the country beyond Shanghai and Beijing

Nationwide, about 327.9 million people in more than 40 cities are affected by the latest lockdowns, Nomura’s Chief China Economist Ting Lu estimated Wednesday. Pictured here from February is a closed shopping mall in Suzhou with red banners proclaiming the need to fight the virus.
Sopa Images | Lightrocket | Getty Images

BEIJING — While the bulk of China’s new Covid cases are in Shanghai and Beijing, data show the impact of business restrictions is more widespread.

For one, nearly 60% of European businesses in the country said they were cutting 2022 revenue projections as a result of Covid controls, according to a survey late last month by the EU Chamber of Commerce in China. More than half of those cuts were by 6% to 15%, the chamber said Thursday.

Among Chinese businesses, monthly surveys released in the last week showed sentiment among manufacturing and service businesses fell in April to the lowest since the initial shock of the pandemic in February 2020. Official and third-party versions of the survey, known as the purchasing managers’ index, pointed to further contraction in business activity from March.

The Caixin services PMI out Thursday was the latest release, with a drop to 36.2 in April. That’s far below the 50 line that indicates contraction or expansion.

Expectations for future output did improve slightly, a press release said. But there were “some concerns over how long it may take to fully contain the virus and to return to more normal business conditions.”

Other data depict a similarly broad impact from Covid restrictions in China.

Power generation rose in the first two months of the year, but slowed to zero growth in March, according to figures cited by Larry Hu, chief China economist at Macquarie. He expects a drop in power generation in April.

In the massive real estate sector, Hu noted that lockdowns also make it “physically impossible to buy property,” sending sales in the top 30 cities down 54% in April from a year ago.

On the consumer front, companies like Starbucks are reporting a widespread impact from Covid.

In the quarter ended April 3, the coffee giant said 72% of the 225 Chinese cities it operates in experienced omicron outbreaks. The company has more than 5,600 stores spread across eastern and central China, its second-largest market.

“With this more infectious variant, mobility restrictions and lockdowns are imposed faster and relaxed more cautiously,” Starbucks’ China chairperson Belinda Wong said in an earnings call. She noted that most of the stores still able to operate do so under “strict safety protocols that interfere with our traffic and operations.”

Starbucks said as of Tuesday, a third of its stores remain temporarily closed, or only offer delivery or takeout. The company has suspended guidance for the rest of its fiscal year.

Since March, mainland China has faced its worst Covid outbreak since early 2020 — using the same zero-Covid strategy of swift lockdowns that had helped the country quickly return to growth back then. Manufacturing areas from the northern province of Jilin to the southern city of Shenzhen were among those initially forced to lock down.

However, the length of restrictions has varied greatly by region. Shanghai, China’s largest city, essentially remained locked down for all of April. The capital city of Beijing began tightening travel and business restrictions toward the end the month to control a spike in Covid cases.

With China’s two largest cities by GDP under Covid controls for the five-day holiday that ended Wednesday, national tourism revenue for the period only recovered to 64.68 billion yuan ($9.95 billion) — 44% of pre-pandemic levels, official figures showed.

“During lockdowns, residents only consume daily necessities, so consumption will inevitably slump, not to mention that price could easily triple during city-level lockdowns,” said Yue Su, principal economist at The Economist Intelligence Unit.

“Lack of confidence in the private sector will drag investment and employment, which will take a much longer period of time to restore even if China introduces more stimulus,” she said.

China reported better-than-expected first quarter GDP growth of 4.8% from a year ago. But retail sales fell in March, while unemployment in the country’s biggest cities set a new high for the pandemic so far.

Lockdowns are affecting “consumers’ ability to reach stores, grocery stores, department stores,” American household products giant Procter & Gamble said in an earnings call last month. “Even online shopping is significantly constrained due to the inability to deliver.”

The company said the market for its products in China didn’t grow in value in the first three months of the year, and that “with the continued lockdown and difficulties in the market, we would expect April to be flat to negative.”

When contacted Wednesday by CNBC, P&G said it did not have an update to share.

Lockdowns across the country

While Shanghai’s prolonged lockdown experience could help other cities better organize food and medical services, the EIU’s Su said that local governments with poor finances would find it difficult to maintain the zero-Covid policy without transfers from the central government.

This week, among smaller cities tightening Covid controls, the city of Zhengzhou ordered residents to work from home and for schools to move online through the end of Tuesday. Zhengzhou is home to a major factory for iPhone supplier Foxconn, which did not immediately respond to a request for comment.

Factories, as is the case in Zhengzhou, typically can maintain at least limited production if they meet the government’s Covid requirements such as keeping workers in a bubble around the industrial plant.

Yum China, which operates KFC and Pizza Hut in the country, warned this week of “stronger headwinds” in the second quarter that would likely result in an operating loss for the period. Other than Shanghai, large cities such as Fuzhou, Suzhou, Tianjin, Shenzhen and Xi’an were partially locked down in April, the company said.

Hopes for a turning point ahead

Nationwide, about 327.9 million people in more than 40 cities are affected by the latest lockdowns, Nomura’s chief China economist Ting Lu estimated Wednesday.

That’s about 31% of China’s GDP, down slightly from last week’s 35.1% share, he said.

The number of new Covid cases in Shanghai and across the country has fallen in the last few days, while Shanghai authorities have added more businesses to a whitelist for resuming production. A measure of road freight — reflecting how easily goods and parts can move around the country — has improved as well, albeit still far below normal levels.

“The worst is probably behind us,” Macquarie’s Hu said in a note Wednesday. “The month of May should see the economy on the mend. The Politburo meeting [of top Chinese leaders] last Friday suggests that it’s too early for top leaders to give up the 5% GDP bottom line.”

Mainland Chinese stocks, known as A shares, rose slightly on Thursday, their first trading day since Friday due to the holiday.

“In our view, the implementation and execution of policy relaxation will have a bigger impact on the stock market,” UBS Securities strategist Lei Meng said in a note Thursday.

After a 4% year-on-year increase in first-quarter A share earnings, the firm expects travel restrictions and other disruptions to cause second-quarter earnings to decline — the expected low point for the year.

View Article Origin Here

Related Articles

Back to top button