Chinese virus cases climb, threaten more global trade disruptions

Chinese authorities on Mar. 15 tightened anti-virus controls at ports, raising the risk of trade disruptions after some auto and electronics factories shut down as the government fights coronavirus outbreaks.

Stock prices in China and Hong Kong sank for a second day following the shutdown on Mar. 14 of Shenzhen, a tech and finance hub adjacent to Hong Kong in the south, and Changchun, an auto center in the northeast. Bus service to Shanghai, China’s business capital and biggest city, was suspended.

China’s case numbers are low compared with other major countries. But authorities are enforcing a “zero tolerance” strategy that aims to keep out the virus. It has temporarily shut down major cities to find every infected person.

The restrictions come at a time when the global economy is under pressure from Russia’s war on Ukraine, surging oil prices and weak consumer demand.

“We can think of no risk to the global economy, excluding nuclear warfare, that is greater than the risk of a COVID outbreak in China that shutters industrial production,” said Carl B. Weinberg of High-Frequency Economics in a report. “Uncountable manufacturing supply chains pass through China.”

Economists say for now, smartphone makers and other industries can use factories and suppliers in other parts of China. But a bigger threat looms if business is disrupted at ports in Shenzhen, Shanghai or nearby Ningbo.

They link Chinese factories that assemble most of the world’s smartphones and computers, as well as a big share of appliances and other goods, with foreign components suppliers and customers. A one-month slowdown at Shenzhen’s Yantian Port last year caused a backlog of thousands of shipping containers and sent shockwaves through global supply chains.

“The risk here is whether COVID will be found at Yantian Port,” said Iris Pang, chief China economist for ING. “If the port has to be suspended, it will affect a lot of electronic imports and exports.”

There was no sign of major disruption, but port operators announced curbs on face-to-face contact with shippers and sailors.

The latest infection surge, blamed on a fast-spreading variant dubbed “stealth” omicron, is challenging Beijing’s pandemic strategy.

All businesses in Shenzhen and Changchun except those that supply food, fuel and other necessities were ordered to close. Bus and subway services were suspended. Millions of residents were told to undergo virus testing.

Anyone who wants to enter Shanghai, a city of 24 million people with auto factories, China’s biggest stock exchange and offices of global companies, must be tested.

Foxconn assembles some smartphones and tablet computers in Shenzhen but has moved most production out of the city. Other manufacturers also have shifted to less expensive parts of China or abroad. They keep research and development, finance and marketing in Shenzhen — functions that can be done by employees working from home.

“Manufacturing is in other places, so unless all of China is affected by COVID, it is not going to be really a shortage of particular goods. For example, phones,” said ING’s Pang.

Also, authorities appear to be trying out a “dynamic ‘zero COVID’ policy” that still aims to keep out the virus but uses “targeted lockdowns” to try to reduce the economic and social cost, said David Chao of Invesco.

“Many see this as a huge COVID risk that could potentially cause further weakness in the Chinese economy,” said Chao. “But I think this gives policymakers the opportunity to evolve their pandemic policies.”