- June 09, 2022
Interact Analysis Senior Research Director Jan Zhang was locked down in Shanghai because of government restrictions. In this new insight, Jan reflects back on her experience and also provides insight into some of the serious implications this period is likely to have on the manufacturing industry.
Many in the West will know that there have been some very harsh lockdowns in parts of China, particularly Shanghai where I live. Though restrictions have recently, and extremely suddenly, eased, we are on standby for them to be re-imposed just as suddenly again. I wrote this insight both to talk about my personal experience of these new lockdowns, and to discuss some business and manufacturing impacts that I see.
The impact of lockdown on a personal level
We were locked in our flats since the beginning of April, though after the 3rd week we were allowed to walk around our locality if infections had gone down to zero in the area. But all shops and restaurants were closed. Where support for people was concerned, things were rather disorganized, particularly at first. People who were not allowed to work were basically living off savings. There are some policies in place, such as lowering mortgage payments, and our company has been granted free rent for six months, but so far unified central government schemes to support people in need are limited.
Express delivery was suspended at the beginning of the lockdown. We were reliant upon local area reps for food deliveries which were very limited in choice. It’s all been very strange, given that we have been used to the convenience of having a wide range of shops offering a wide choice of foods. Shops began to open on the 1st June. All of a sudden, it was as if we were waking up from a 2 month long bad dream. There are now no limits on the number of people who can enter the store, we just have to show a green code nucleic acid test.
Shanghai: Goods piling up at the port are clogging national and global supply chains
Shanghai has strong, high value, automotive and semiconductor industries. For example, Tesla and SAIC, two of the leading automotive OEMs in China, have factories here. According to the National Bureau of Statistics, China’s national automobile output in 2021 was 26,528 million, and the output of automobiles in Shanghai was 2,833 million, so that’s ~10% of the national output. Shanghai is also the largest auto parts production base in China, with nine of the world’s top ten parts groups’ Chinese headquarters located in the city. Meanwhile, according to the statistics from the China Semiconductor Industry Association, revenues from Shanghai’s integrated circuit industry in 2020 reached 207.1-billion-yuan, accounting for 23% of the national total. The city has a complete integrated circuit industry chain, and, by the end of 2021, Shanghai accounted for 32% of China’s listed integrated circuit enterprises.
The city is also an important logistics hub, with very large port facilities which are a global gateway for goods coming into China, as well as being a domestic logistics center for the Yangtze Delta area. The port has not been completely shut down during the lockdown, with workers being allowed to continue working, and it is also highly automated, but there has been a shortage of truck drivers to get goods in and out, so there’s a serious logjam of goods which has sent shockwaves through supply chains across the country and indeed across the globe.
Government assistance for businesses has been hit and miss
There are policies coming from central government, but it’s a long chain of command filtering down through the provinces and local industries, and it takes time. When we heard about the lockdown at the end of March, we thought it would be for 1-2 weeks. But it’s been very strict, more so than in Wuhan in 2020, even though the virus is much weaker. On a personal or business level we weren’t prepared for what was coming. In April and May, companies had to apply for permission to continue functioning and not many were granted permission – about 600 made it on to the whitelist as the first batch of enterprises, to resume work and production, which is a drop in the ocean in a city like Shanghai with a population of over 26 million. And when companies did get permission to resume working, their activities were restricted. More companies are beginning to start up again now, but the economic impact has been severe. Shanghai has lost over 60% of GDP during the lockdown, putting a serious dent in the government’s 5.5% GDP growth plan.
We are expecting more government support, but it’s all a bit uncertain what shape it will take. Here at Interact we have been fine as we can work from home, but manufacturing has been hit really hard.
Relief as Shenzhen avoids extended lockdown
The disruption to the national economy and to international supply chains would be even greater if Shenzhen were to be subjected to the same lockdown restrictions as Shanghai. Shenzhen is a massive electronic industrial center. Shenzhen ranks fourth in the world’s container throughput whilst the Shanghai port is at the top. But there was a two-week lockdown at the end of March, when they shut down the city very quickly, and it worked. The lockdown in Shanghai hasn’t been as effective, partly because it is a more of an international hub. Shenzhen has managed to keep its manufacturing running at near full capacity, and industrial leaders are prepared to keep workers on site if the city goes into lockdown again, in order to maintain production.
Lockdown: Bad for business; bad for people.
Few positives come out of this for business, beyond making business leaders think carefully about how to maintain production during future global shocks. On a personal level, it has affected some people quite badly, with talk of loneliness, frustration and even PTSD. Old people who don’t understand how to use the internet have perhaps been hit the hardest.
For me, I’m just glad it mostly seems to be ending and I’m praying we don’t return to it!
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