Nationwide, about 327.9 million people in more than 40 cities were affected by the latest shutdowns, Ting Lu, Nomura’s Head of China Economics, estimated Wednesday. Pictured here from February is a closed shopping mall in Suzhou with red banners declaring the need to fight the virus.
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BEIJING – While the majority of China’s new Covid cases are in Shanghai and Beijing, data shows the impact of business restrictions is more common.
According to a survey late last month by the EU Chamber of Commerce in China, nearly 60% of European businesses said they were cutting their 2022 revenue forecasts due to Covid control measures. More than half of that is between 6% and 15%, the room said on Thursday.
Among Chinese businesses, monthly surveys released last week showed sentiment among manufacturing and service businesses in April fell to its lowest level since the initial shock of the pandemic. translated in February 2020. The official and third-party versions of the survey, known as purchasing managers’ index, show business activity has continued to shrink since March.
Thursday’s Caixin Services PMI was the latest release, with a drop to 36.2 in April. This number is much lower than the 50 line indicating contraction or expansion.
Expectations for future output have improved slightly, a press release said. But there is “some concern about how long it may take to fully contain the virus and to return to more normal business conditions.”
Other data depicts a similar widespread impact from Covid restrictions in China.
Power production increased in the first two months of the year, but slowed to zero in March, according to data from Larry Hu, chief China economist at Macquarie. He expected power output to drop in April.
In the huge real estate sector, Hu noted that the lockdown has also made it “unable to buy real estate”, sending sales in the top 30 cities in April down 54% from a year earlier. last year.
In terms of consumers, companies like Starbucks are reporting widespread impact from Covid.
In the quarter ended April 3, the coffee giant said 72 percent of the 225 Chinese cities it operates in experienced omicron outbreaks. The company has more than 5,600 stores spread across eastern and central China, its second largest market.
“With this more contagious variant, movement restrictions and lockdowns are applied more quickly and are relaxed more cautiously,” said Starbucks China President Belinda Wong during an earnings call. She noted that most stores can still operate under “strict safety protocols that impede traffic and our operations.”
Starbucks said that as of Tuesday, one-third of its stores were still temporarily closed, offering either delivery or takeout only. Companies have Instruction is suspended for the remainder of the financial year.
Since March, mainland China has faced its worst Covid outbreak since early 2020 – using the zero-Covid rapid lockdown strategy that helped the country quickly return to its growth back then. . Production areas from the north of Jilin province to south of Shenzhen city were among those initially forced to close.
However, the length of restrictions has varied greatly by region. Shanghai, the largest city in China, basically still locked for the whole month of April. The capital city of Beijing begins tightening travel and business restrictions at the end of the month to control the spike in Covid cases.
With China’s two largest cities by GDP under Covid control during the five-day holiday ending Wednesday, national tourism revenue for the period only recovered to 64.68 billion yuan. yuan ($9.95 billion) – 44% of pre-pandemic levels, official figures show.
Yue Su, chief economist at The Economist Intelligence Unit, said: “During the lockdown period, people only consume daily necessities, so consumption is bound to drop, not to mention possible prices. easily tripled during the city-wide lockdown,” said Yue Su, chief economist at The Economist Intelligence Unit.
“The lack of confidence in the private sector will drag on investment and jobs, which will take longer to recover even if China introduces more stimulus measures,” she said.
China news Better-than-expected first quarter GDP growth of 4.8% from a year ago. But retail sales fell in March, while the unemployment rate in the country’s largest cities set new highs for the pandemic so far.
Lockdowns are affecting “consumers’ ability to access stores, groceries, department stores”, the US home products giant Procter & Gamble said in an earnings call last month. “Even online shopping is significantly constrained by the inability to deliver.”
The company said the market for its products in China did not grow in value in the first three months of the year, and that “given the continued closure and difficulty in the market, we expect April to not increase to a negative level.”
When contacted by CNBC on Wednesday, P&G said it had no updates to share.
Lockdown nationwide
While Shanghai’s prolonged lockdown experience could help other cities better organize food and medical services, EIU’s Su thinks it will be difficult for local governments with poor finances to maintain government policy. zero-Covid policy without a handover from the central government.
This week, among smaller cities tightening Covid controls, Zhengzhou asked residents to work from home and move to online schools until the end of Tuesday. Zhengzhou, home to iPhone supplier Foxconn’s large factory, did not immediately respond to a request for comment.
Factories, as is the case in Zhengzhou, can often maintain at least limited output if they meet government Covid requirements, such as keeping workers in bubbles around industrial plants. .
Chinese Yum, which operates KFC and Pizza Hut in the country, warned this week of “stronger headwinds” in the second quarter that are likely to lead to operating losses during the period. In addition to Shanghai, major cities such as Fuzhou, Suzhou, Tianjin, Shenzhen and Xi’an were partially closed in April, the company said.
Hoping for a turning point ahead
Nationwide, about 327.9 million people in more than 40 cities were affected by the latest shutdowns, Nomura chief economist Ting Lu estimated Wednesday.
That’s about 31% of China’s GDP, down slightly from the previous week’s 35.1%, he said.
The number of new Covid cases in Shanghai and across the country has decreased over the past few days, while the Shanghai government has added more businesses to the whitelist to resume production operations. The road freight measure – which reflects how easily goods and parts can be moved around the country – has also improved, although still far below normal.
“The worst is probably behind us,” Macquarie’s Hu said in a note Wednesday. “May will see the economy recover. Politburo meeting [of top Chinese leaders] It’s Friday suggests that it is too early for the top leaders to give up the 5% GDP margin. “
Mainland China shares, known as A shares, rose slightly on Thursday, their first trading day since Friday due to the holiday.
“In our view, policy enforcement and easing will have a larger impact on the equity market,” said Lei Meng, a strategist at UBS Securities.
After first-quarter A-share earnings rose 4% year-over-year, the company expects travel restrictions and other disruptions to lead to a drop in second-quarter earnings — a low expected. in the year.
