Why Shanghai lockdown matters for world economy – Reuters

Located on the east coast of China, Shanghai is the largest and wealthiest city in the country and one of the largest metropolises in the world. Along with the neighboring city of Kunshan, which closed earlier this month, it plays an outsized role in the global economy.

With no sign that the Chinese government is ready to ease restrictions any time soon, concerns are growing about the economic damage they are causing and the shockwaves a prolonged lockdown will send around the world.

Shanghai is the epicenter of the current Covid outbreak, but it’s not the only one: Nomura analysts estimate that full or partial lockdowns have been implemented in 45 Chinese cities, affecting a quarter of the population and around 40% of the population. the economy.

Premier Li Keqiang on Monday warned for the third time in a week about the threat that the rise of Covid poses to China’s economy. Here are three reasons why the rest of the world should be watching Shanghai closely, too.

Business and Finance

It has the highest GDP of any Chinese city: 4.32 trillion yuan ($679 billion), the third largest stock market in the world by value of the companies operating there, and the fifth most billionaire in the world.

Shanghai is also the most attractive destination for international companies considering a presence in mainland China.

By the end of 2021, more than 800 multinational companies had established regional or national headquarters in Shanghai, according to city authorities.

Of these, 121 are Fortune Global 500 companies, including Apple (AAPL), Qualcomm (COMQ), General Motors (GM), Pepsico (DYNAMISM) Y Tyson Foods (TSN).

More than 70,000 foreign companies have offices in the city, of which more than 24,000 are Japanese companies, according to Japanese government data.

With a total market capitalization of $7.3 trillion, the Shanghai Stock Exchange, established in 1990, tracks only New York and London. Trading continues despite the shutdown, but some banks and investment firms have asked staff to sleep near their desks to keep the market running.

The Shanghai-listed group of companies focuses heavily on large state-owned companies that play a central role in China’s economy. They include the world’s most valuable liquor manufacturer, Kweichow Moutai, banking and insurance giants such as ICBC and Chinese life insurance (LFC)and the state oil company petrochina (PCCYF).

The Shanghai Stock Exchange is also home to China’s answer to the Nasdaq, the Star Market.

trade and logistics

Shanghai represents 3.8% of Chinese GDP. But it has a much larger share – 10.4% – of China’s trade with the rest of the world, according to official statistics from last year.

The port of Shanghai is the busiest in the world in container traffic. It moved 47 million 20-foot-equivalent cargo units in 2021, four times the volume handled by the Port of Los Angeles. This number represented 16.7% of China’s total container shipments. last year.

Shanghai is also a major aviation hub in Asia. The city’s airports, Pudong International Airport and Hongqiao Airport, handled 122 million passengers in 2019, making the city the fourth busiest hub in the world after London, New York and Tokyo.

Lockdowns in Shanghai and other Chinese cities pose a growing threat to the economy

But the Covid outbreak has worsened delays at ports and forced the suspension of many passenger flights, sending air freight rates skyrocketing and putting even more pressure on global supply chains.

Shanghai’s port remains operational, but industry data released in late March showed the number of ships waiting to be loaded or unloaded soared to a record high. State media also reported that many truckers were struggling to get containers in and out of the port on time due to travel restrictions.

Manufacturing and technology

Greater Shanghai Region, which includes Kunshan and several other eastern cities, is a major manufacturing center for industries ranging from automobiles to semiconductors.

volkswagen (VLKAF) and General Motors operate factories in Shanghai in association with state-owned automaker SAIC Motor. Shanghai is also home to tesla (TSLA) first gigafactory in Asia. The US electric vehicle maker delivered more than 65,000 cars from its Shanghai factory last month. do it the best-selling electric vehicle brand in China.

In January, Ford opened its sixth Global Design Center in Shanghai, highlighting the city’s vibrancy and the growing number of young Chinese designers with a combination of “new thinking, local knowledge and global perspectives.”

TSMC (SST), the world’s largest contract chipmaker, operates a major semiconductor factory in the suburb of Songjiang. The best Chinese chipmakers. minimum salary (SMICY)and Hua Hong Semiconductor have factories in Pudong, east of the city.

Covid lockdowns cause chaos in the world's largest car market

But Covid restrictions have forced many factories to suspend operations in Shanghai and Kunshan, threatening to disrupt key auto and electronics supply chains.

Volkswagen and Tesla factories in Shanghai have been closed for weeks. Chinese electric vehicle maker Nio has also been forced to halt production due to Covid-related disruptions in Shanghai and other Chinese cities.

Pegatron, a key supplier for Apple (AAPL), suspended production at its Shanghai and Kunshan factories until further notice. In other, the technology Unimicron of Taiwan, which fournit des cartes de circuits imprimés à Apple, et Eson Precision – a subsidiary du fournisseur d’iPhone Foxconn which also fournit également des composants à Telsa – ont interrupted the production dans leurs installations de Kunshan au début of the month.

“With Shanghai’s significant trade ties to East Asia, this could have spillover effects on regional supply chains,” Citi analysts also said in a research note late last week.

“We think that Korea, Taiwan, Vietnam and, to a lesser extent, Japan (in vehicles) appear relatively exposed. [to the disruptions]” they have said.

Other industries include pharmaceuticals. In October, AstraZeneca (AZN) opened a global R&D center in Shanghai.

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