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April 14, 2022

What Shanghai's Covid-19 surge could mean for the world

Daily Briefing

    As China struggles with its biggest Covid-19 outbreak since the start of the pandemic, cities around the country, including Shanghai, have entered restrictive lockdowns—and experts warn that these lockdowns could have detrimental effects on the global supply chain and trade.

    Chinese citizens struggle under extended lockdowns

    Throughout the pandemic, China has largely employed a "zero Covid" policy, which relies heavily on mass testing, strict border controls, contact tracing, extensive quarantines, and lockdowns to quickly extinguish any outbreaks. However, this strict approach may no longer be tenable as the country faces its largest Covid-19 surge in over two years.

    Currently, more than 200,000 Covid-19 cases have been recorded in China over the past few weeks, the Associated Press/Seattle Times reports. And according to analysts at Nomura, around 45 Chinese cities have entered into partial or full lockdowns.

    This includes Shanghai, a city of 26 million people, which is entering its third week of lockdown. The city's new daily Covid-19 cases recently exceeded 26,000, although only around 1,200 cases were symptomatic. So far, the Chinese government has sent 2,000 army medics and 38,000 medical personnel from other provinces to assist with virus prevention efforts.

    However, the surge is stretching the limits of Shanghai's medical and public health system. Because of the sheer number of people testing positive, the city's quarantine wards are quickly filling up, and officials have had to erect temporary wards. In addition, some nursing homes are struggling to care for elderly patients, particularly as their own staff become infected.

    There has also been growing discontent among Shanghai residents who have been confined to their homes for the past few weeks. Many people have posted online about shortages of food and supplies, as well as limited access to medical care.

    "Being locked down is quite an extreme, temporary governance state, and our cities are not built for these circumstances," said Hu Xijin, a retired editor of The Global Times. "During this time, it's unlikely that the supply of materials will reach normal levels."

    On Monday, Shanghai officials moved to ease the lockdown in some areas of the city after another round of mass testing. Neighborhoods are now divided into three risk levels, and people living in areas with no positive cases over a two-week period are now able to leave their homes, although precautions are still required.

    According to Gu Honghui, a Shanghai official, the city plans to make "dynamic" adjustments to the new system to help reduce the negative impacts the lockdown has had on the city's residents.

    The global impact of Shanghai's lockdown

    Shanghai is home to China's busiest port and is a popular international business destination, meaning an extended lockdown could have a significant impact on the global economy and trade.

    According to CNN Business, the Port of Shanghai is the world's busiest port for container traffic and was responsible for 16.7% of China's total container shipments in 2021. However, the current Covid-19 surge has led to lengthy port delays, with the number of vessels waiting to load or discharge reaching record highs in late March.

    "If Shanghai port stops functioning, it's difficult for other nearby ports to fill in the void given its gigantic capacity," said Betty Huang and Xia Le, two researchers at BBVA, a financial services firm. "By then the global supply chain will directly feel the pain of Shanghai's lockdown."

    In addition, the greater Shanghai area, which includes the city of Kunshan, undergoing its own lockdown, is a major manufacturing hub for several industries. Because of the lockdowns, many factories manufacturing cars, circuit boards, and other electronic components have suspended production.

    For example, Volkswagen and Telsa have both shut down their factories in Shanghai. Pegatron, a key supplier for Apple, has also suspended production at its Shanghai and Kunshan factories.

    "If the closures drag on for too long then it would lead to product shortages both in and outside of China," said Julian Evans-Pritchard, senior China economist at Capital Economics.

    According to analysts, Shanghai's lockdown is likely to have significant economic and trade impacts on countries worldwide, particularly emerging economies such as Cambodia and Vietnam that rely heavily on Chinese imports for manufacturing. The United States, which receives more than 15% of its international imports from China, will also likely experience delays and supply chain issues.

    "The pandemic has highlighted the need for greater supply chain diversification and resilience," Evans-Pritchard said. "The latest developments in China are just another reminder of that." (AP/Seattle Times, 4/13; Reuters/NBC News, 4/11; Feng, "Goats and Soda," NPR, 4/6; Wang, New York Times, 4/10; Landen, Newsweek, 4/10; He, CNN Business, 4/13; Katsuri, Al Jazeera, 4/13; Hille/Hale, Financial Times, 4/13)

    Learn more: How Covid-19 will impact the supply chain

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    Covid-19 has revealed critical shortcomings in the health care supply chain. Shortages of personal protective equipment (PPE), ventilators, and other vital supplies have hindered the U.S. health care system‘s response to this crisis, and additional waves of shortages are likely in coming months.

    Read our take to learn three requirements for a more resilient, transparent supply chain in light of Covid-19.

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