Home Business Shanghai lockdown weighs on Chinese economy

Shanghai lockdown weighs on Chinese economy


Is this the last “good figure” for the Chinese economy for a long time? Beijing announced on Monday April 18 a rebound in its growth, in the first quarter of 2022, of 4.8% over one year. Admittedly, the figure is far from the pre-Covid level – when Chinese growth flirted with 6 to 7% in 2018 and 2019, even 10% a few years earlier – but the performance is still better than expected (4, 3%).

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It nevertheless contrasts with the images of Shanghai revealing its streets that are completely deserted, or almost. Because the 25 million inhabitants of the economic and financial capital of the country have been partially confined since the end of March, and strictly since the beginning of April, under the effect of an epidemic outbreak linked to the Omicron variant. The Chinese authorities, who practice the “zero Covid” strategy, have decided on this confinement, the consequences of which on the country’s activity are perceptible.

Several tens of millions of Chinese confined

No doubt, the first signs of slowing down are there: unemployment up slightly (from 5.5% to 5.8%), retail sales which plunged (from + 7.5% in January-February to – 3.5% in March), production which is slowing (+ 7% at the start of the year, and + 5% in March), just like growth, which accelerated less rapidly than in the first quarter.

“It is difficult, in these circumstances, to imagine that the country will reach the national objective set by the communist power of a GDP growing by 5.5% by the end of 2022”, points out Christopher Dembik, at Saxo Bank. And for good reason: confinements block household consumption – in addition to Shanghai, several tens of millions of Chinese were confined in March in the technological metropolis of Shenzhen (South), and are still confined in the northeast of the country, cradle of the automotive industry.

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The port of Shanghai works with difficulty, and in slow motion. It is difficult to access it and it receives less goods from the country because certain sectors are completely at a standstill in the confined regions, “which weigh 40% of Chinese GDP”emphasizes Christopher Dembik.

China’s quest for growth

For Xi Jinping, who wants to be reappointed at the end of 2022 for a new term as head of the country, the stakes are high. “The major question, analysis Philippe Waechter at Ostrum Asset Managementis to know where Chinese growth can come from now. Because not only national consumption is weakening, but, in addition, foreigners are now buying less from China, hit by soaring energy prices and the war in Ukraine in particular. Finally, real estate, which has so far been a pillar of Chinese activity, is threatened by the bursting of an over-indebtedness bubble. »

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The difficulties are already beginning to be exported. In particular through the channel of international trade: the supply chains had barely begun to recover from the first shock linked to Covid, two years ago, when they found themselves again weakened: cargoes which did not arrive at the port of Shanghai, or with delay, or which are incomplete, ships which leave late or less loaded than usual, canceling certain stops on their way back…

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“Chinese transport disruptions come on top of those related to the war in Ukraine and the sanctions on Russia, or even to specific causes such as the dockers’ strike in the United States”, decrypts Christopher Dembik.

European recession?

When China coughs, the West gets the flu? Economists are divided. For Philippe Waechter, this Chinese brake will not be without consequences, in particular on the European economy, which according to him should “to be in recession in 2022 – before the United States in 2023. Moreover, the German economy has already been in decline for two quarters, penalized by the decline in Chinese demand. » However, if the European economic locomotive slows down, “France, which is its first trading partner, will in turn be drawn in and trapped”predicts Philippe Waechter.

At Saxo Bank, Christopher Dembik knows that he will have to revise his growth forecasts downwards, but not to the point of concluding a recession for 2022. While admitting that, from now on, “the global economy is facing many shocks, both profound and concurrent”. And to quote the Covid, “from which one emerges less easily than expected”the war in Ukraine and the energy shock that it contributes to intensify, and the difficulties of China, long engine of the world economy.

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