China’s Covid-19 Lockdowns Starting to Sting

China’s lockdown of many factories in the Yangtze River Delta last week in a prolonged battle with Covid-19 has underlined the economic costs of China’s stringent pandemic-control measures.

The sudden lockdown of districts in the cities of Shaoxing and Ningbo in Zhejiang province has left business owners scrambling to pacify clients over delayed deliveries and listed companies apologizing to shareholders for expected losses.

Two years since China reported its first Covid-19 case in Wuhan, the government still tries to smother the virus with lockdowns, mass testing and quarantine wherever it emerges. Constant disruptions to local businesses and people’s lives under Beijing’s “zero-tolerance” Covid-19 policy have added to recent headwinds for the economy.

Last year, China’s draconian lockdown measures helped restart the economy well ahead of other major nations, which meant a boost to its exports. This year, it is becoming clear that authorities’ stringent measures to control outbreaks come with economic costs.

In recent months, economic activity has been cooling across several sectors. Economic data out Wednesday in Beijing showed that while industrial-production growth picked up in November, consumption and investment continued to weaken, with some economists partly blaming the strict Covid-19 policies.

Over the past 10 days, Zhejiang has reported more than 200 locally transmitted cases, with roughly two-thirds in one district of Shaoxing. Zhejiang’s local economy, about 6% of China’s total economy last year, boasts an annual gross domestic product of roughly $1 trillion.

The district, Shangyu, with about 840,000 people, is the site of a cluster of factories from traditional textile companies to high-tech firms, with exports accounting for more than one-quarter of the local economy.

In company filings, at least 14 listed companies based in Shangyu said they have halted production after the Shangyu district government imposed a sudden lockdown last Thursday.

The move followed the detection of more than a dozen local cases traced to a funeral. Since then, all residents have been directed to stay home, vehicles have been ordered off the roads and all factories have been told to shut down, except for those necessary for combating Covid-19 or ensuring necessities such as food and medicine, according to a statement posted by the Shangyu district government on its verified social-media account.

Zhejiang Yankon Group Co., a manufacturer of light-emitting diode, or LED, lights that sells products on Amazon, said in a filing to the Shanghai Stock Exchange that production and logistics operations at its Shangyu factory have been suspended since last week.

Revenue generated from production in Shangyu accounted for more than 40% of the company’s total revenue over the first nine months of the year, the company said. It is trying to shift some orders to its three other factories outside Zhejiang, but delays and losses are expected.

“Abrupt outbreak…affected delivery in LED lighting products,” the company said in its filing. “We sincerely apologize.”

For some businesses, it is hard to shift production. Zhejiang Huangma Technology Co. said two of its subsidiaries, which represent its full production capacity, have both halted output. Expected delays in deliveries will affect the company’s operations for December, its filing said.

Most companies said they expect the disruptions to be short-lived, though it remains unclear how long the lockdown will last.

are suspended, while funerals require permission from the local government and must be limited in size. Since last week, there have been three rounds of mass testing.

In the neighboring port city of Ningbo, Ningbo Fubang Jingye Group Co., an aluminum producer, said its aluminum subsidiary in the city’s Zhenhai district has halted production, according to a company filing Tuesday.

Chinese port and border cities have been hit particularly hard this year as waves of infections triggered rounds of lockdowns.

In August, dozens of ships lined up to load cargo for Western markets outside a major container terminal at China’s Ningbo-Zhoushan Port, which had closed after the detection of a single Covid-19 case.

Authorities in the northern port city of Tianjin said on Monday they had detected the mainland’s first case of the Omicron coronavirus variant. On Tuesday, the southern city of Guangzhou said it has detected another infection with the Omicron variant.

Since late last month, Manzhouli, a city bordering Russia, has conducted over a dozen rounds of mass testing, detecting more than 500 Covid-19 cases. Local businesses and residents said that their lives have basically been on pause since Nov. 28. Nearly all flights, trains and public transportation are halted, disrupting domestic and foreign trade. Weeks in, much of the city is still under lockdown.

It is Manzhouli’s second major lockdown. A previous lockdown that lasted more than a month ended in late December last year.

“History repeats itself. Exactly a year later, I’m apologizing to my clients again,” a local business owner posted on Twitter-like site Weibo.

Repeated lockdowns for more than a year have taken a toll on the local economy in Ruili, a jewelry-trading center on China’s border with Myanmar, which was growing at 8.1% in 2020, boosted by trade and tourism. For the first nine months of this year, Ruili’s economy contracted 8.4% from a year earlier, the latest official data showed.

After an online uproar by residents over the Covid-19 measures, the provincial government of Yunnan, home to Ruili, last month promised to waive quarantine and testing costs, offered subsidies to families relocated due to Covid-19 control measures and cut taxes for local businesses.

China’s National Health Commision reported 50 locally transmitted Covid-19 infections for Tuesday, including 45 in Zhejiang. The southern city of Dongguan, China’s most well-known export-oriented manufacturing hub, reported two local cases.

Author: Liyan Qi, The Wall Street Journal

You might also like