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News Item: China’s economic growth and factory productivity updates

China's economic growth under threat as virus takes hold

The mounting cost of China’s zero-Covid policy threatens to derail Beijing’s ambitious GDP target, analysts say, as supply chains snarl, ports face delays and Shanghai remains mired in lockdown.

Growth in the world’s second-largest economy was already slowing in the latter half of last year with a property market slump and regulatory crackdowns, leading policymakers to set their lowest annual GDP target in decades for 2022.

But analysts told AFP the figure of 5.5 percent would be tough to achieve with stay-at-home orders halting production and stunting consumer spending in key cities.

Experts from 12 financial institutions polled by AFP forecast GDP growth of 5.0 percent for the full year.

They expect a figure of 4.3 percent for the first quarter, just above the 4.0 percent recorded in the three months prior.

Official first-quarter data will be published Monday.

“China’s economy saw a good start in January and February with less energy constraints, domestic demand recovery… fiscal stimulus, and resilient exports,” said Gene Ma, head of China research at the Institute of International Finance.

But surging virus cases in March and lockdowns have “severely disrupted supply chains and industrial activities”, he added.

The analysts predicted the coronavirus outbreak would reverse the gains made earlier in the year.

Carmakers this week warned of severe disruption to supply chains and possibly even halting production completely if a lockdown in business hub Shanghai continues.

Premier Li Keqiang said this week that state support should be stepped up and tools including cuts to the reserve requirement ratio for banks could be tapped to help virus-hit sectors.

Other major cities struck by Covid outbreaks include southern tech powerhouse Shenzhen, which went into full lockdown for almost a week in March.

“The hit to retail sales could be even bigger, as dining-out services — around 10 percent of retail sales — were temporarily suspended in a few provinces,” Goldman Sachs said in a recent report.

But economists expect bigger consequences of the lockdowns to surface in April data and bog down growth.

– ‘Lesson’ –

With infections found in dozens of cities, Beijing has dug in its heels on the zero-Covid approach, which involves stamping out clusters as they emerge while conducting mass testing and isolating positive cases.

This has resulted in strict movement curbs in Shanghai for around two weeks now as the financial hub logs tens of thousands of cases daily — most asymptomatic.

The city is home to the world’s busiest container port and while operations are running, intercity travel restrictions and a shortage of truck drivers have snarled the passage of goods.

The daily flow of freight vehicles along highways has “weakened sharply” since the start of April, Capital Economics senior China economist Julian Evans-Pritchard said in a recent report.

Shanghai authorities have come under fire for allowing cases to spike and for failing to ensure supplies of fresh food reach all residents.

“Shanghai is a lesson, and local governments from other parts of China may become more sensitive to domestic flare-ups,” said Tommy Xie, head of Greater China research at OCBC Bank.

“If they want to lock down, they will try to lock down earlier rather than later,” he told AFP.

More short-term disruptions from Covid will likely arise, he added.

Controls in other coastal cities will also remain tight, said Dan Wang, chief economist at Hang Seng Bank China.

“It is not impossible for us to see maybe dozens or even more than 30 cities on lockdown at the same time,” she said.

“The economic cost is very high.”

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Shanghai lockdowns threaten China's auto output while port congestion worsens

Chinese automakers warned they may have to put the brakes on production if Covid-19 lockdowns in Shanghai persist, with a top Huawei executive also sounding the alarm Friday about snarled supply chains.

The restrictions have kept Shanghai’s 25 million residents mostly at home for weeks, forcing manufacturers to halt operations and making China’s GDP growth target of around 5.5 percent look increasingly difficult to achieve.

Shipping giants also warned that Shanghai’s lockdown was snarling up the world’s busiest container port.

Covid outbreaks across the country and the associated reductions in economic activity have already hit the auto industry hard, with car sales dropping 10.5 percent in March.

“If supply chain companies in Shanghai and its surrounding areas cannot find a way to dynamically resume work and production, all original equipment manufacturers may have to stop production in May,” XPeng chief He Xiaopeng said Thursday on social media.

XPeng has been touted as a Chinese challenger to US electric car giant Tesla, and its chief said that businesses were hoping for more support from the authorities to navigate the Covid closures.

A top executive at Chinese tech giant Huawei — which has started to work with domestic auto manufacturers in the intelligent vehicle sector — echoed the comments on Friday and warned the clock was ticking.

“If Shanghai continues being unable to resume work and production, from May, all tech and industrial players involving the Shanghai supply chain will completely shut down, especially the auto industry!” Richard Yu, head of Huawei’s consumer and auto segment, said on the social media platform WeChat.

Huawei sold its first 3,000 electric vehicles with the company’s HarmonyOS operating system in March.

The group has been working with automakers to provide intelligent auto components, but does not make cars on its own.

– Global brands affected –

The Covid curbs have affected global brands as well, with Volkswagen saying it has been “severely hit by Covid-19 outbreaks in Changchun and Shanghai”, where the German titan’s Chinese joint ventures are located.

The firm is “temporarily unable to meet high customer demand,” said Volkswagen Group China CEO Stephan Wollenstein Thursday.

China’s zero-Covid policy has been increasingly strained as the country battles its highest number of infections since the start of the pandemic.

Volkswagen said around 20 percent of its dealers were forced to temporarily close in March alone as a result of lockdowns.

And Tesla’s multi-billion-dollar “gigafactory” in Shanghai — which the company calls its main export hub — has also been reportedly shut.

Chinese electric vehicle maker Nio said last weekend that it had suspended vehicle production, as business partners in virus-hit areas such as Jilin and Shanghai halted operations.

Containers have been piling up at the port of Shanghai as the city faces limited trucking capacity, and shipping giant Maersk said in a statement Thursday it would stop taking new bookings for refrigerated containers and hazardous cargo into the city.

It cited “yard congestion in Shanghai terminals” for the move.

Another shipping company, Ocean Network Express, said that plug slots for keeping refrigerated containers cool were “highly stressed”.

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