9 April 2022 14:33

Shanghai lockdown

40 companies forced to suspend operations

China's unwavering commitment to stamping out Covid by locking down big cities such as Shanghai threatens to deal a hefty shock to its vast economy, place more strain on global supply chains and further fuel inflation.

CNN:China's unwavering commitment to stamping out Covid by locking down big cities such as Shanghai threatens to deal a hefty shock to its vast economy, place more strain on global supply chains and further fuel inflation.

Shanghai — home to China's leading financial center and some of its largest sea and airports — has been under lockdown for 12 days, and there's no sign of it ending.

Small businesses have been hit hard, with shops and restaurants being forced to shut down. Tesla, as well as many Chinese and Taiwanese manufacturers, are unclear about when they can restart their factories. Meanwhile, port delays are getting worse, and air freight rates are soaring, putting even more pressure on global trade.

he stringent restrictions have dispelled any expectations that the country may relax its zero-tolerance approach towards Covid-19.

"The surging cases in Shanghai convinced top leaders that there is no middle ground between zero-Covid and living with Covid. From now on, snap lockdown could be the prevailing strategy," said Larry Hu, chief economist for Greater China at Macquarie, in a research report this week.

President Xi Jinping has pledged to "minimize" the economic impact of his Covid policy, but the deteriorating situation in Shanghai — and the extended lockdown — raise tough questions about Beijing's approach to outbreaks of Omicron, a much more infectious variant of the original virus.

"The Omicron variant is highly infectious, and it has become increasingly challenging for China to reach its 'zero-Covid' objectives while most other countries opt for a 'living with Covid' approach," Ting Lu, managing director and chief China economist for Nomura, wrote in a note earlier this week.

He believes that China's rising cases and escalating lockdowns in Shanghai and several other cities will suppress activity across a wide range of sectors, including in-person services, travel, logistics, construction and some manufacturing.

"The economic costs could be staggering," Lu said, adding that global investors may be "underestimating" the impact of China's zero-Covid policy on its economy and the markets.

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