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China’s Covid Outbreak Worsens As Shanghai Cases Top 26,000

Shanghai is fighting China’s worst Covid-19 outbreak since the virus first emerged in Wuhan in late 2019, with about 26,000 new local cases reported.

People wearing personal protective equipment as they transfer daily food supplies and necessities for local residents during the Covid-19 lockdown in Shanghai. 

China is entering its biggest Covid-19 outbreak ever in two years as the pandemic continues to spread regardless of an extended lockdown of Shanghai’s 25 million people, with the restrictions weighing on a fragile economy and straining global supply chains.

There were 26,087 new daily infections reported in Shanghai on Sunday, an all-time high. Residents have been locked down for weeks now, with frustration building among the population when they struggle to get access to food and medical care.

Elsewhere, the southern metropolis of Guangzhou is implementing a series of restrictions after local authorities warned the 20 cases they found last week could be the tip of the iceberg. Guangzhou has been known as a trading hub of the country. The infections and similar containment measures across China are an increasing drag on the world’s second-largest economy, with results for global growth, supply chains, and inflation.

A resident is tested for Covid-19 in a neighborhood placed under lockdown in Shanghai, on April 9. Photographer: Qilai Shen/Bloomberg

Shanghai’s battle with Covid-19 means other local governments may become more sensitive to flare-ups and step up mobility controls even when cases are low, “The Chinese economy may have to brace for more short-term disruptions in the coming months,” said Tommy Xie, head of greater China research at Oversea-Chinese Banking Corp. 

Economists now predict the economy will get a 5% growth this year, below the official target of around 5.5%. Analysts at Morgan Stanley have cut their growth forecasts this year on the lockdown impact, while Citigroup Inc. has warned of risks to growth in the current quarter.

Chinese stocks plunged Monday over pandemic concerns, rising global interest rates, and persistent regulatory headwinds. The Hang Seng Index decreased 3% Monday in Hong Kong, as did China’s benchmark CSI 300 Index.

China’s quarantine is already having a ripple effect across the region. Activity among Hong Kong’s private businesses slumped further into contraction in March, as lockdowns in mainland China weighed on new orders, according to the S&P Global purchasing managers’ index. Taiwan’s exports to China also decelerated in March from February.

Logistics Logjam

“China’s worst Covid outbreak may lead to delays and higher prices, which could stall recovery and further add to global inflation,” said Bruce Pang, head of macro and strategy research at China Renaissance Securities Hong Kong Ltd.

The Shanghai Shipping Exchange Shanghai (Export) Containerized Freight Index, a measure of freight rates, decreased to 4,349 on April 1 from a peak of 5,110 in early January. The drop shows an easing in exports, according to Bruce Pang.

China’s exports are forecast to have enlarged 13% in March, economists forecast ahead of data due this week. That would be an acceleration from 6.2% in February but slower than the 30% growth recorded for the full year of 2021. Exports are expected to slow down later this year due to a high base and as factories in other countries reopen.

Containers are being stuck in Shanghai, the biggest port in China, since the lockdown in the city has led to a shortage of trucks to clear imports. It’s also disrupted business operations in Shanghai, with terms like chip giant Semiconductor Manufacturing International Corp. struggling last week to secure vehicles to deliver finished goods.

Many individual housing compounds in the financial hub were halted earlier in March, and then the city prohibited the movement in the eastern part—home to the financial district and numerous industrial parks— on March 28 and then in the west from April 1. The case numbers have increased in spite of those controls, but about 95% of the virus cases are now among people already under isolation, data from the municipal government on Monday showed.

Looser Lockdown

In a sign of tentative easing, Shanghai’s authorities stated on Monday that people living in housing complexes that have had no infections in the past two weeks will be released from quarantine and allowed to move around their neighborhood. City officials did not indicate how many people were covered by the policy, but this is the first sign of a path out of the weeks-long crisis.

Other cities across the country are also seeing rising cases, with 21 of China’s 31 provinces reporting cases Sunday. Wuhan city, the location of the first outbreak more than two years ago, reported 12 asymptomatic cases on Sunday and reported Monday morning that people would have to show a negative Covid test to use the subway.

Guangzhou has halted schools until April 17 and will conduct mass-testing and several places have closed indoor entertainment venues. The local authorities are also requiring people to have a negative nucleic acid test before leaving the city.

Cities in more than 10 provinces have stopped some entrances and exits to highways in order to build up Covid checks of people entering their cities, local media Jiemian published Saturday. Many highway checkpoints are stopping drivers according to their travel history, forcing them to detour or turn back and disrupting logistics.

Logistics in the Yangtze River delta area around Shanghai have not been smooth, the Ministry of Transport stated Saturday. The ministry ordered that no Covid testing checkpoints be set up in the main lanes of highways so that transport is smooth.

In a sign of growing unpleasantness with this kind of restriction and lockdowns, European organizations in China last week requested the government to ease the Covid Zero policies, saying that it was causing “significant disruptions” to logistics and production in supply chains across China.

The disruptions to business are showing up in many indicators. Plants activity in March in China fell to its worst level since the pandemic’s onset two years ago, according to the Caixin Manufacturing Purchasing Managers’ Index, a private survey focusing on smaller export-oriented businesses. The official PMI also showed a contraction in both manufacturing and services sectors in March.

The hit to consumption from lockdowns and more residents staying home instead of shopping or traveling continues to get worse. Data Monday indicated a 10.9% plunge in vehicle sales in March from a year earlier, after a gain of 4.7% in February.

Tourism revenue over the Qingming Festival, the three-day national holiday last week, decreased by 31% from last year to 18.8 billion yuan ($3 billion), according to official data. That’s equivalent to 39% of the pre-pandemic level in 2019, the Ministry of Culture and Tourism said.

Price Pressures

Vegetable prices have also spiked due to the lockdown, which surged 17.2% on year in March, compared to a drop of 0.1% in February. Moreover, there’s rising concern that mobility restrictions are threatening the spring planting of crops in the Northeastern region, the nation’s most crucial source of rice, soybeans, and corn.

This means “the risk of food shortage may rise in the second half, adding further pressure to the worsening global food shortage caused by the ongoing military conflict in Ukraine,” Nomura Holdings Inc. economists led by Lu Ting shared in a note Monday. Rising food and energy price inflation may limit the space for the People’s Bank of China to cut interest rates despite the rapidly worsening economy, Nomura wrote.

Source: Bloomberg News