China’s Lockdown In Shenzhen Could Add Up To Global Economy Chaos

Published on

While the past two years have been a headache for global supply chains, businesses are now bracing for more. Russia’s war against Ukraine is already distorting markets, and COVID-19 cases in China are resurging and leading to key factory closures.

GDP Impact

As reported by local news, the Shenzhen lockdown means that the country’s tech and financial hub —the home of some major companies— has to halt production. Among the companies affected are Apple Inc (NASDAQ:AAPL), and suppliers Foxconn Technology Co Ltd (TPE:2354) and Unimicron Technology Corp (TPE:3037).

Get The Full Ray Dalio Series in PDF

Get the entire 10-part series on Ray Dalio in PDF. Save it to your desktop, read it on your tablet, or email to your colleagues

The economic impact for the country could be immense and analysts say that China's goal of a 5.5% GDP growth is now unrealistic.

As informed by CNN, China reported 5,280 new cases on Tuesday, more than doubling the previous day's tally. Entire cities are now under lockdown and people are relying on food supplies stored at home.

Shenzhen will be closed for at least a week, which means that the Yantian port —the third-largest in the world— is unlikely to be able to accommodate ships this and next week.

Last year, the Yantian port had to close due to severe Covid outbreaks, and the scale of disruption of cargo transportation was about twice as large as that of the Swiss canal.

Further Supply Chain Pain

DW Business Correspondent Tsou Tzung Han said, “With this and more and more cities in complete or partial lockdowns, we will see a highly disrupted supply chain. And there are many reports on sources in Chinese industry revealing their fear.”

“Many big companies, are gradually moving their factories outside of China, with a target of about 15% to 20% capacity diversification by 2023,” he added.

Official data shows that China's exports and investment grew by 13.6% and 12.2%, respectively, from January to February, while consumer retail sales increased by 6.7%. For the industry, however, the data was far better than the market's expectations.

“We have economists that predict that the pandemic and the Russia-Ukraine war could affect half of China's GDP. We know the government is targeting a GDP growth of about 5.5% now —more and more banks expect it to grow by just 4% to 5% this year, not to mention issues with the tech sector.”