Shenzhen & Shanghai, which are known as the home of the 4th and 1st largest container ports globally, have entered new Covid restrictions this past weekend. This caused a new risk to trade flows from China. Cases have doubled in recent days bringing new measures into place to curb the spread, including at the port in Shenzhen.
The government of China placed the 17.5 million residents of Shenzhen into lockdown for at least a week and forbade people from leaving Jilin. This is the first time the government has sealed off an entire province since the area surrounding Wuhan was isolated in early 2020.
The Shenzhen lockdown, which came after new virus cases doubled nationwide to almost 3,400, will be accompanied by three rounds of city-wide mass testing. Called with little notice on Sunday, the order followed earlier restrictions on Shenzhen’s central business district and will last until March 20.
All public transportation systems in the city were locked, along with businesses providing non-essential services, spurring a key Apple Inc. supplier to halt its production. Residents will be prohibited from leaving Shenzhen, which is home to the headquarters of tech giants Huawei Technologies Co. and Tencent Holdings Ltd. Shenzhen Yantian Port remains operational, although with tighter Covid controls.
Hon Hai Precision Industry Co., familiarly called Foxconn – a crucial Apple supplier, said it was halting operations at its Shenzhen sites, one of which makes iPhones. The company, which has its China headquarters in Shenzhen, didn’t mention the length of the shutdown and revealed that it would reallocate production to other locations in China.
In Jilin, a province of 24 million that borders Russia and North Korea in China’s northeast, people have been ordered not to leave or travel, particularly those in the provincial capital of Changchun and the city of Jilin, where the infections of Coronavirus has been occurring rapidly. Changchun was already sealed last week, forcing Toyota Motor Corp. to halt the operation of its plant there. On 7th Mar, Volkswagen AG said that one of its Chinese joint ventures had suspended operations at three factories in the city.
The growing cases spawned by the rapidly infectious omicron variant in some of China’s most developed cities and economic zones have turned into an unprecedented challenge for the country’s policy. Covid Zero strategy, which kept China virtually virus-free for long periods, is increasingly isolating the country when others open up. Up to now, the authorities had widely resisted more extreme measures such as lockdowns in China’s biggest cities and relied more on targeted responses. China still hasn’t seen a virus fatality since January 2021.
Why China Is Determined To Its Covid Zero Strategy?
The wave of infections in Shenzhen is believed to have a strong connection to an unbridled outbreak in neighboring Hong Kong, which came from a handful of cases to more than 30,000 within almost a month. A Covid outburst in Shanghai also has led to most schools returning to online learning and restricting travel into the city. Bus services from other provinces were suspended during the weekend, and China’s aviation regulator has had discussions with airlines about diverting all international flights into the financial center.
Unimicron Technology Corp., a printed-circuit-board maker with main operations in Shenzhen, also halted output. Car and battery maker BYD Co. said it’s seeing some impact on production at its Shenzhen campus.
The lockdown of Jilin is the first one of an entire province since China shut in more than 50 million residents in Hubei in early 2020 to stem the spread of Covid following its emergence in the provincial capital of Wuhan. Jilin is home to one of China’s biggest mineral reserves and is also a crucial agricultural area. Its industries are mainly concentrated around the grain, timber, car, and railway sectors.
China National Petroleum Corp.’s refinery in Jilin, for instance, produces petrochemicals and plastics which are delivered by truck to plants making automobiles and industrial parts. Any supply snarl could mean knock-on delays along auto production lines.
Cases are popping up throughout the country, with omicron also in Beijing and Tianjin, a nearby coastal city. Several cities in Jiangsu province, next to Shanghai, and in the country’s manufacturing powerhouse province of Guangdong, have also reported infections.
Worst Outbreak Since Wuhan
Jilin has the biggest outbreak, with more than 1,000 Covid cases in the community on 6th Mar and 3,868 people testing preliminary positive as of 12 p.m. on the following Monday.
In moves reminiscent of the early days of the pandemic in Wuhan, officials are immediately building makeshift hospitals in Jilin and in the eastern port city of Qingdao. China quarantines all Covid cases, regardless of severity, as a method to halt the spread of Covid-19. A Toyota joint-venture factory making RAV4 SUVs in Changchun suspended operations on 7th Mar given the lockdown.
Investors reacted to the news by selling shares related to tourism and China’s reopening while buying rapid antigen test-kit makers after China started allowing them for general use since 5th Mar. An index of Macau casinos slumped as much as 10% to a record low, with the seal and outbursts likely to limit gamblers from the mainland, especially neighboring Guangdong.
Covid Zero strategies have brought out disruption, with multiple rounds of mass testing in Tianjin in January suspending operation at another Toyota factory there for more than a week. The static will make it harder for Beijing to hit its economic growth target in 2022, as the costs of the measures rise, Nomura Holdings Inc. states. China still reiterated its commitment to Covid Zero, with top health official Ma Xiaowei saying strict measures needed to remain in place and that officials should avoid “war-weariness” in their work.
Until 9th Mar, 14 of China’s provinces had been declared high or medium-risk for Coronavirus, accounting for 54.4% of gross domestic product, according to Bloomberg Economics.
The Covid-19 surge in Hong Kong has provided an unprecedented challenge to Beijing, with the city’s tight border controls and weeks-long quarantines no match for omicron once it entered the city. Thousands of people left the Asian financial hub to return to the mainland, with Shenzhen and Shanghai some of the busiest seaports.
Hong Kong’s health system and morgues have been under pressure from the record outbreak that’s pushed its death rate to one of the highest in the world. While the Coronavirus case count in the city appears to have plateaued over the past week, still, fatalities have risen, especially among the elderly, which had some of the lowest vaccination rates in spite of their greater vulnerability.
The Hong Kong government is still formulating strategies for the mandatory testing of all its residents, including timing and how they’ll ensure essential operations can continue if movement restrictions were to be imposed, Chief Executive Carrie Lam has said. Authorities will focus on vaccinating older people living at care facilities – which are seeing a surge in fatalities -and increase the number of hospital beds to treat patients, she has said.
Also an adherent of Covid Zero, Hong Kong has opened up with the limits of the tactic, along with the government scrambling once omicron got through tough border defenses. There seems to have been little planning for if the virus flared meaningfully in the city, resulting in scenes similar to those seen in the early days of the pandemic. Hong Kong’s density and political climate make it difficult to lock down, and officials have so far resisted calling one despite pressure from Beijing.
Rapid Tests
Whilst China is publicly still committed to eliminating Covid, there are signs the country’s health officials and experts are at least considering in which way they may exit the approach and live with Coronavirus as endemic.
China last month approved the antiviral pill Paxlovid, developed by Pfizer Inc., a move was seen by many as evidence of such planning. The introduction of rapid antigen tests on 4th Mar may also be a sign, with other countries shifting toward the use of at-home tests after their lab-testing systems were overwhelmed by the broader circulation of the virus.
That said, any shift will be slow and unlikely to occur before 2023, given the need for stability in a politically important year for President Xi Jinping, people familiar with China’s thinking have told Bloomberg.
Zhang Wenhong, one of China’s top infectious disease experts who advises the Shanghai government, speaks in a social media post on 7th Mar that China needs to stick to Covid Zero for now, as opening up would cause a run on hospitals and lead to excessive fatalities.
He pointed out the “fairly high” number of elderly people and those with underlying diseases still not yet vaccinated due to concerns about side effects from the shots. There would be “inconceivable consequences” should infections spread vastly among them, the expert said.
China has in the past voiced concern about elderly vaccination rates in some areas. Though nearly 90% of the country’s 1.4 billion people have been fully inoculated, they’ve not provided details on the figures for specific age groups.
Source: Bloomberg
