What we know about China’s economic impact as Covid spikes

A man carries a child up to the window of a tent for a Covid-19 test in Changchun city, Jilin province, northeastern China, on March 15, 2022.

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BEIJING – China’s latest Covid-19 outbreak could cause first-quarter gross domestic product to drop by at least half a percentage point, Citi analysts predicted in a report on Tuesday.

In the last few days, mainland China has seen its worst Covid outbreak since the pandemic’s initial peak in early 2020 – when the economy shrinks. The latest increase in cases, stemming from the highly contagious omicron variant, has forced several manufacturing centers across the country to suspend or limit production.

According to Citi estimates, the worst-affected regions account for 16.7% of the national GDP.

“The economic damage is likely to be real this time around,” the analysts said. “Considering the spillover to other regions, we think lockdown measures and tightened quarantines this time around could potentially deduct ~0.5-0.8 ppt GDP growth in Q1, if there’s no policy response.”

Mainland China reports 1,860 confirmed Covid cases for Tuesday, down from more than 3,500 new cases a day earlier. The whole country has no reports of new deaths and the number of new cases is still much lower than in other regions of the world, such as Europe.

Beijing’s zero-Covid policy measures have prompted analysts to report on the growing risks to the world’s second-largest economy, even as few can put a number on the numbers. about it.

Uneven picture

“We believe the omicron wave presents both risks and opportunities for China,” Bank of America Securities’ China equity strategy team said in a report Tuesday.

If the pandemic is well managed, the outbreaks could help China prepare to reopen its borders, analysts say. But if it doesn’t, they argue that the omicron wave “could have a significant negative impact on China’s GDP growth and disrupt global supply chains in the near term, and potentially accelerate the decoupling process.” disengage and reposition the supply chain in the medium term.”

So far, analyst research and tests with local factories have shown limited impact on chipmaking, automobiles, clothing and beer, among other industries. The Android smartphone supply chain could be among the hardest hit, the report said. However, like other industries, production can be moved to other locations.

As for autos, the analysts said, “according to test channels, some Shanghai-based names have experienced greater disruption, while BYD’s Shenzhen plant is operating normally.” normally as of March 14.”

BYD did not immediately respond to CNBC’s request for comment.

We have been informed that all ports and terminals in Shenzhen (Yantian and Chiwan) are currently operating normally.

The shutdown and production suspension measures announced by Shenzhen and Dongguan – two manufacturing hubs in the exporting province of Guangdong – will only last about a week.

Economic data for January and February reported on Tuesday beyond expectations, and a spokesman for the National Bureau of Statistics said the impact of the virus would mostly be at the local level.

“March could be a different picture depending on how long the restrictions in Shenzhen and Jilin last,” said Francoise Huang, senior economist at Euler Hermes, a subsidiary of Allianz. “If it only lasts for a week or two, it can become a blip in the data.”

The latest wave of Covid has hit the northern Chinese province of Jilin the hardest, with the region accounting for the majority of daily new cases. The province banned travel to other parts of China on Monday, and is building emergency hospitals.

Although Jilin’s capital Changchun is an auto manufacturing hub, China’s contribution to GDP is 0.65%, less than Dongguan’s 0.95% and Shenzhen’s 2.73%. according to Citi.

Targeted zero-Covid policy

Read more about China from CNBC Pro

A report by Moody’s Analytics said that if the recent shutdowns persist, the “economic pain” could extend through the first quarter into the beginning of the second.

The lock can still work?

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