China’s biggest COVID-19 lockdown in 2 years raises new supply chain concerns

China’s most extensive COVID-related lockdown in two years is underway in Shanghai, as the city of 26 million endures a series of gradual shutdowns to test a growing coronavirus outbreak.

The financial capital and China’s largest city has implemented a two-phase partial lockdown for the next 10 days, starting with the Pudong financial district and surrounding areas from Monday to Friday. This will allow mass testing to begin after 3,500 new cases of COVID-19 were reported on Sunday.

In the second phase of the lockdown, the sprawling downtown west of the Huangpu River that divides the city will begin its own five-day lockdown.

Residents will be required to stay at home and deliveries will be left at checkpoints to ensure there is no contact with the outside world. Offices and all businesses not deemed essential will be closed and public transport suspended. Bridges and tunnels inside and outside the area are strictly guarded.

Consumers and businesses in North America and Europe may well feel the impact on supply chains.

“The damage can also spread further than that because Shanghai is such an important node in global supply chains,” Bloomberg economist Chang Shu said. “So far, the lockdown allows operations to continue at financial institutions and ports [but] anything beyond the current plan risks disrupting financial flows and international trade.”

Electric car maker Tesla has a factory in Shanghai that the company says is currently out of production.

The facility is China’s second largest in the world outside of its main facility in California. Some of the vehicles produced there are exported to markets beyond China.

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Oil prices fall on fears

The shutdown “raises deeper supply chain concerns and inflationary implications,” said Scotiabank economist Derek Holt.

“Among the uncertainties could be concerns about what the test results might look like and any associated policy response, as well as whether this will serve as a model for expanding measures elsewhere.”

Oil prices reacted immediately to the prospect that more lockdowns in the Chinese economy would lead to a dramatic drop in demand for energy.

West Texas Intermediate fell nearly $10 a barrel to trade at just over US$104.

Colin Cieszynski, chief market strategist at SIA Wealth Management in Toronto, said foreclosure fears had spooked the market.

“Recall that there was a previous lockdown in southern China, in Shenzhen, which didn’t last very long,” he told CBC in an interview on Monday. “It remains to be seen how long this one can last. But it continues to remind us that disruptions can still occur at any time.”

Locals store food

Already, many communities in Shanghai have been locked down in the past week, with their housing compounds blocked by blue and yellow plastic barriers and residents required to submit to multiple tests for COVID-19.

Shanghai’s Disneyland theme park is among the businesses that closed earlier. Automaker Tesla is also suspending production at its Shanghai plant, according to media reports.

Medical staff walk past barriers in an area under lockdown in Shanghai on Friday. (Aly Song/Reuters)

Panic buying was reported on Sunday as supermarket shelves were cleared of food, drink and household items. Additional barriers were erected in neighborhoods on Monday, with workers in hazmat suits for checkpoints.

In-person sightings of the April 5 grave-sweeping festival have been canceled and commemorations will instead be held online.

Workers prepare for the “bubble”

Some workers, including traders at the city’s stock exchange, were preparing to stay in a COVID-19 “bubble” for the duration of the lockdown.

Li Jiamin, 31, who works in the financial sector, said she had packed several days worth of clothes and supplies, and her business was taking care of sleeping and eating.

“The overall impact is still significant,” Li told The Associated Press, pointing in particular to the losses suffered by workers in the informal sector, who do not receive such support.

Huang Qi, 35, who works at a local university, said he had already been confined to his home and prepared for the new cycle by stocking up.

“I think if the shutdown continues like this, our school staff will not be affected much, but what about those who work in the real economy? How can their business be maintained? Huang said.

“I still hope that our society can strike a better balance between ensuring normal life and preventing and controlling the epidemic,” Huang added.

People line up at a COVID-19 mass testing site in Shanghai on Sunday. (Aly Song/Reuters)

Shanghai has converted two gymnasiums, an exhibition hall and other facilities to house potentially infected patients.

China has called its longstanding “zero tolerance” approach the most cost-effective and effective prevention strategy against COVID-19.

The new measures applied in Shanghai aim to “curb the spread of the virus, protect people’s lives and health, and achieve the dynamic goal of zero COVID as soon as possible”, the COVID-19 prevention and control office said. of the city in a press release on Sunday evening. .

This requires mass lockdowns and testing, with close contacts often quarantined at home or in a central government facility. The strategy aims to eradicate community transmission of the virus as quickly as possible.

Security guards in protective gear load goods onto a cart for transfer to barricaded residential buildings locked for health surveillance following a COVID-19 case detected in the Beijing area on Monday. (Andy Wong/Associated Press)

On Friday, the International Air Transport Association announced it was moving its annual general meeting from Shanghai to Doha, Qatar, citing “continued COVID-19 related restrictions on travel to China”.

“It is deeply disappointing that we cannot meet in Shanghai as planned,” IATA Director General Willie Walsh said in a press release.

Still, Shanghai’s announcement of the dates for lifting both lockdowns appears to show an additional refinement in China’s approach. Previous citywide lockdowns had been unlimited.