Al-anwar Newspaper English news in Australia
After two years of Covid and now Russia’s invasion of Ukraine, the resilience of the global interlinked supply chains is being continually tested.
Now China’s zero Covid strategy is being challenged for the first time since the virus was first detected in the central city of Wuhan, with outbreaks in many cities.
How might the outbreak and subsequent severe lockdowns affect Australia, which relies on China as its biggest trade partner by far?
And could there be a further twist if Beijing’s close ties to Moscow end up snaring China’s economy in the growing web of international sanctions over Russia’s war?
More than 5,000 new cases were reported by the Chinese government on Tuesday, the most since the early days of the Wuhan outbreak, according to Bloomberg.
The list of regions with tight lockdowns already include the southern technology hubs of Shenzhen and Dongguan, covering 23 million people between them, and the north-eastern province of Jilin, with a similar number of residents.
Add in megacities such as Shanghai and provincial capitals like Xi’an, and large parts of the economy are suddenly in hibernation.
Betty Wang, ANZ’s senior economist in Hong Kong, says the lockdowns will certainly dent the economy.
“A one-week lockdown of the affected areas could cause [a drop of] as much as 0.8 percentage points in GDP growth,” Wang says.
That’s significnt given the government’s predicted growth rate of 5.5% for 2022. ANZ is predicting a 5% growth rate is more likely.
But, as in Australia, Beijing is not sitting back. It’s planning a ¥2.5tn (A$500bn) tax cut and rebate plan to stoke growth among other support, Wang says.
Disruptions in Shenzhen, dubbed China’s Silicon Valley, will send wide ripples.
Foxconn, an assembler of iPhones, suspended production, helping to send Apple shares lower on Monday before they rebounded during trading on Tuesday. Toyota and Volkswagen, which have plants in Jilin, were among other firms affected.
Effects, though, should prove temporary – provided the lockdowns aren’t prolonged, Wang said.
The current state of the Chinese economy going into the Covid lockdown, though, was already mixed.
After the first two months of 2022, the economy performed better than expected in areas such as spending on so-called fixed assets such as roads, with 12.2% growth – more than double the 5% pace economists predicted.
Retail sales grew 6.7%, or twice the 3% rate forecast, while even investment in the debt-wracked property sector rose almost 4% when a fall of 7% was tipped, according to CBA senior Asia economist Kevin Xie.
“The one weak spot in [Tuesday’s] data was a lift in the surveyed jobless rate to 5.5%, indicating increased stress in the labour market,” Xie said.
“We expect consumption, the weak spot over the past two years, will again be hurt the most compared to production and exports in March,” he said. “Moreover, the continued weakness in the property sector, elevated geopolitical tensions, and tighter regulations in the tech sector continue to weigh on economic growth.”
