Shanghai is finally lifting its lockdown after 7 weeks. The global economy has yet to feel its full impact, experts warn.
Wang Gang/VCG via Getty Images.
- City officials in Shanghai are planning to gradually ease lockdown restrictions after seven weeks.
- The lockdown forced shops and factories to close and disrupted ports.
- The ripple effects of the lockdown have yet to be fully felt by the global economy, experts warn.
Shanghai has begun to emerge from a lockdown that has constrained the global economy and created even more turmoil for supply chains.
The city's deputy mayor, Zong Ming, said in an online news conference on Monday that the city would emerge from restrictions in phases, aiming to return to normal life by June 1, Reuters reported.
In line with China's zero-COVID strategy, Shanghai entered a strict lockdown on March 28 to combat a rising number of Omicron cases.
The tough restrictions hit businesses in the manufacturing and commercial hub of Shanghai, not to mention the broader global economy, as factories were shuttered and workers were confined to their homes. Truckers struggled to move goods in and out of the city's huge port due to restrictions on movement.
But even when the restrictions lift, experts have warned that the impact of the lockdown will continue to cause ripple effects around the world.
Shen Chunchen/VCG via Getty Images.
Manufacturers may ramp up production ahead of the lockdown lifting, but it might not be easy.
Shops and factories have been largely closed in Shanghai and workers have struggled to commute to work under strict work-from-home rules.
Tesla closed its Shanghai gigafactory entirely for three weeks and reopened operating a "closed-loop" system with workers sleeping on the factory floor, Bloomberg first reported.
Despite reopening, the electric-car manufacturer said production has been slowed due to challenges with getting parts, Reuters reported, citing an internal memo. It recently delayed plans to ramp up production to pre-lockdown levels by May 16. It was facing difficulties bringing more workers back to the factory under the closed-loop conditions still required before the lockdown lifts entirely, Reuters recently reported, citing a source familiar with the situation.
Tesla did not immediately respond to Insider's request for comment.
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Shanghai is home to the world's busiest port and processes around 20% of Chinese exports.
Ioana Kraft, general manager of the Shanghai Chapter at the European Union Chamber of Commerce in China, said problems with logistics at the port have been a key factor in snarls across the global supply chain.
According to Project44, a supply-chain data-tracking platform, the port saw a 175% increase in container dwell time between March and April, meaning ships have been waiting longer to take on cargo, indicating issues with trucking operations on land.
Truck drivers are slowed by needing different COVID permits to travel between different areas in China in a "patchwork" of regulations, the Financial Times reported.
Goods will start flowing in and out of Shanghai's port as the lockdown lifts, but delays for ships and trucks are unlikely to disappear.
The number of vessels waiting outside the port is increasing as factories grapple to secure the materials needed to return to full production, Project44 said, adding: "The situation is expected to remain dire for a while."
Yin Liqin/China News Service via Getty Images.
The slump in production capacity in China helped to ease logjams at US ports that were created during the pandemic.
But as manufacturing resumes in Shanghai and more goods are shipped out, ports across the US East and West coasts are likely to be strained again, experts told Insider.
"As soon as these lockdowns end and you have all this capacity actually being moved at the same time, it will definitely, I would say, create new issues, and most probably it will be issues on both sides of the US," Alex Charvalias, a supply-chain lead at the vessel-tracking site MarineTraffic, said.
And with no structural changes at US ports expected in terms of truckers, workers, and port facilities, those ports won't have the capacity to deal with a sudden rise in ships arriving, experts said.
"If demand is not changing, backlogs will continue, because the reason for the backlogs is lack of transport inland, lack of labor and facilities to unstuff the containers," Stanley Smulders, the director of marketing and commercial at the global-shipping company Ocean Network Express, said.
Yin Liqin/China News Service via Getty Images.
China's retail sales dropped during the lockdown and may not recover in the coming months, experts have warned.
Retail sales in China fell by over 11% year-over-year in April, according to recent data from China's statistics bureau.
"These numbers are unlikely to improve significantly in the coming months given that China is unlikely to alter its zero-COVID policy," Michael Hewson, a markets analyst, told the financial news site Sharecast on Monday.
Retail and tech giants including Starbucks and Apple have said that the lockdown would have long-term implications for business.
Apple predicted that ongoing chip shortages caused by supply-chain constraints would cost the company between $4 billion and $8 billion in the next quarter, while Starbucks also reported a dip in Chinese sales as a number of chains were closed.
Other analysts predicted a slump in GDP. Goldman Sachs analysts reduced their forecast for China's GDP from 4.5% to 4%, adding that they do not expect to see an increase before the second quarter of 2023, CNBC reported on Wednesday.
Zhang Jiansong/Xinhua via Getty Images.
Officials said the pattern of strict lockdowns in China could curb foreign investment in the country.
The US Chamber of Commerce warned that the lockdown could have long-term consequences on investment because of travel restrictions that will hamper projects, Reuters reported on Tuesday.
"Unfortunately the COVID lockdown this year and the restrictions for the last two years are going to mean three, four, five years from now, we will see investment decline, most likely," Michael Hart, the president of the American Chamber of Commerce in China, said on Monday, per Reuters.
"Fifty-eight percent of our members have already decreased revenue projections for 2022, while 61% have experienced supply-chain disruptions due to transportation and shipping issues. Most worryingly, members don't see any light at the end of the tunnel," Colm Rafferty, the chairman of the US Chamber of Commerce in China, added in a press release posted to the AmCham China website Tuesday.
Insider has reached out to the US Chamber of Commerce in China for comment.
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Manufacturers have faced a shortage of materials including semiconductors and auto parts, partially caused by the lockdown in Shanghai.
Kevin Krot, the executive vice president of aerospace and defense at the global supply-chain consulting group SGS-Maine Pointe, told Insider that manufacturers across industries like automotive, aerospace, and defense could start to bring their production capacities closer to home as a result.
"We're definitely seeing more onshoring," Krot said, adding that the impact of this would not be noticeable for another two to three years.
Krot said that constraints would push consumers to change their purchasing habits, liking keeping their phones and cars for longer.
"Consumers will now keep their phones six months longer," he predicted. "We're going to learn to adapt."
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