China’s biggest COVID-19 lockdown in 2 years prompts new supply chain concerns

China’s most extensive COVID-related lockdown in two years is underway in Shanghai, as the city of 26 million people undergoes a series of phased shutdowns to test a growing outbreak of the coronavirus.

China’s financial capital and largest city has implemented a two-phase partial lockdown for the next 10 days, starting with the Pudong financial district and nearby areas from Monday to Friday. This will allow mass testing to get underway after 3,500 new cases of COVID-19 were reported Sunday.

In the second phase of the lockdown, the vast downtown area west of the Huangpu River that divides the city will start its own five-day lockdown.

Residents will be required to stay home and deliveries will be left at checkpoints to ensure there is no contact with the outside world. Offices and all businesses not considered essential will be closed and public transport suspended. Bridges and tunnels in and out of the area are being strictly monitored.

Consumers and businesses in North America and Europe may well feel the impact on supply chains.

“The damage may also spread farther than that because Shanghai is such an important node in global supply chains,” Bloomberg economist Chang Shu said. “So far the lockdown allows for continued operations at financial institutions and ports [but] anything beyond the current plan risks disruptions to financial flows and international trade.”

Electric car maker Tesla has a factory in Shanghai that the company says is currently out of production.

The facility is China’s second biggest in the world outside of its main facility in California. Some of the vehicles produced there are exported to markets beyond China.

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Oil prices fall on fears

The shutdown “invokes deeper supply chain concerns and inflationary implications,” Scotiabank economist Derek Holt said.

“Among the uncertainties could be concern about what the testing results may look like and any associated policy response, plus whether this will be a template for expanding measures elsewhere.”

Oil prices responded immediately to the prospect that more lockdowns in the economy of China would produce dramatic declines in demand for energy.

West Texas Intermediate lost almost $10 per barrel to trade at a little over $104 US.

Colin Cieszynski, chief market strategist at SIA Wealth Management in Toronto, said lockdown fears have spooked the market.

“Recall that there was an earlier lockdown in southern China, in Shenzhen, that it didn’t last very long,” he told CBC in an interview Monday. “It remains to be seen how long this one may last. But it just does continue to remind us that that disruptions can still happen at any time.”

Local stockpiling food

Already, many communities within Shanghai have been locked down for the past week, with their housing compounds blocked off with blue and yellow plastic barriers and residents required to submit to multiple tests for COVID-19.

Shanghai’s Disneyland theme park is among the businesses that closed earlier. Automaker Tesla is also suspending production at its Shanghai plant, according to media reports.

Medical staff walk in front of barriers of an area under lockdown in Shanghai on Friday. (Aly Song/Reuters)

Panic-buying was reported on Sunday, with supermarket shelves cleared of food, beverages and household items. Additional barriers were being erected in neighborhoods Monday, with workers in hazmat suits staffing checkpoints.

In-person observations of the April 5 Tomb Sweeping Festival have been canceled and memorials will instead be held online.

Workers prepare for ‘bubble’

Some workers, including traders at the city’s stock market, were preparing to stay within a COVID-19 “bubble” for the duration of the lockdown.

Li Jiamin, 31, who works in the finance industry, said she had packed several days of clothing and supplies, and her company was sorting out sleeping and eating arrangements.

“The overall impact is still great,” Li told The Associated Press, pointing especially to losses suffered by workers in the informal sector, who have no such support.

Huang Qi, 35, who works at a local university, said he had undergone a lockdown at home before and prepared for the new round by stocking up.

“I think if the closure continues like this, our school workers will not be affected much, but what about those who work in the real economy? How can their business be maintained?” Huang said.

“I still hope that our society can find a better balance between ensuring normal life and epidemic prevention and control,” Huang added.

People line up at a COVID-19 mass testing site in Shanghai on Sunday. (Aly Song/Reuters)

Shanghai has converted two gymnasiums, an exhibition hall and other facilities to house potential infected patients.

China has called its long-standing “zero-tolerance” approach the most economical and effective prevention strategy against COVID-19.

The new measures being enforced in Shanghai aim to “curb the virus spread, protect people’s life and health, and achieve the dynamic zero-COVID target as soon as possible,” the city’s COVID-19 prevention and control office stated in an announcement Sunday evening .

That requires lockdowns and mass testing, with close contacts often being quarantined at home or in a central government facility. The strategy focuses on eradicating community transmission of the virus as quickly as possible.

Security guards in protective gear load goods onto a trolley to transfer to barricaded residential buildings locked down for health monitoring following a COVID-19 case detected in the area in Beijing on Monday. (Andy Wong/The Associated Press)

On Friday, the International Air Transport Association announced it was moving its annual general meeting from Shanghai to Doha, Qatar, citing “continuing COVID-19 related restrictions on travel to China.”

“It is deeply disappointing that we are not able to meet in Shanghai as planned,” IATA Director General Willie Walsh said in a news release.

Still, Shanghai’s announcement of the dates when the two lockdowns would be lifted appeared to show a further refinement in China’s approach. Previous citywide lockdowns had been open-ended.

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