Advertisement
China economy
Opinion
Tommy Wu
Tommy Wu

Macroscope | Surprise Shanghai lockdown adds to China’s economic and supply chain fears

  • The impact of the lockdown on Shanghai itself might not be that great, but it still has significance for the future of China’s approach to Covid-19
  • The sight of Shanghai’s sophisticated strategy failing could lead governments with fewer resources to resort to crude, large-scale lockdowns

Reading Time:3 minutes
Why you can trust SCMP
3
A security guard helps a resident collect their deliveries as more items are placed on a table at the gate of a residential community under lockdown in Shanghai on March 29. A two-phase lockdown of Shanghai’s 26 million people is testing the limits of China’s hardline “zero-Covid” strategy, which is shaking markets far beyond the country’s borders. Photo: AP
Tommy Wu
An unexpected lockdown in Shanghai has raised concerns over China’s economic and supply chain prospects. While we think the additional impact from the Shanghai lockdown on its own might not be as substantial as some expect, what it means for the future of China’s Covid-19 strategy is still significant.
The announcement of the lockdown in Shanghai on March 27 came as a surprise after the city’s authorities had repeatedly resisted calls for a full-scale shutdown. The city has struggled to contain the spread of the virus in recent weeks, using a targeted approach to restrict mobility in specific neighbourhoods to avoid broader disruption.

Although most new Covid-19 cases are asymptomatic, the Shanghai government has reversed course and decided to impose a full-scale lockdown in two phases. Starting on Monday, half of the city was shut down for testing for four days; the other half will be locked down for four days from Friday.

We expect the additional impact from the lockdown in Shanghai might not be that significant given that the city had already imposed tighter restrictions in many neighbourhoods in the past few weeks. This means some of the economic damage has already been done.

Advertisement
Some industrial activities and most financial and commercial activities should be able to continue, which will help mitigate the economic impact of the lockdown. Some factories are likely to continue operating, at least partially, under “closed loop” arrangements in which employees can work and live in premises isolated from the general public.
Meanwhile, the Shanghai Stock Exchange remains open, and some financial companies have even asked staff to stay in their offices during the lockdown period to maintain operations. Many business activities can still be done with staff working from home. The fact that China’s overall mobility has not deteriorated further is also encouraging.
Advertisement

Still, consumer services will stop during the lockdown. Even though ports will continue to operate, logistics will be disrupted as strict mobility restrictions will slow truck transport. This will have some impact on China’s domestic supply chain and exports, and global supply chains will be affected. Some container ships might divert to other nearby ports, causing port congestion elsewhere.

The lockdowns in Shenzhen in mid-March and now in Shanghai illustrate the challenge the government faces in maintaining a “zero-Covid” approach to the more transmissible Omicron variant. The Shanghai lockdown could have major implications for how China’s zero-Covid strategy will be implemented in the future and could delay an eventual exit from this approach.
Advertisement
Select Voice
Choose your listening speed
Get through articles 2x faster
1.25x
250 WPM
Slow
Average
Fast
1.25x