Renewed lockdowns in China: The Yangtze Delta has the most negative sectoral implications

Covid cases are on the rise in China again. While the quarantine rules are eased, there are fresh restrictions in other aspects. Recent data for Q2 2022 shows clearly how negative the impact of lockdowns has been on the Chinese economy and its global reverberations, especially on supply chains. In this note, we analyze China's industrial activities by province and sector to shed light on the economic impact of potential disruptions induced by lockdowns.

Even though China successfully tamed the infection curve, the cost was high. The strict lockdowns in Shanghai and Beijing led to GDP contraction of 12% and 3% in Q2 2022 respectively. Other important production centers, such as Jiangsu and Jilin, also experienced various levels of slowdown. The lack of mobility in these important cities affected?the production and exports of automobiles, electronics and semiconductors for domestic and foreign firms.?

Looking at the geographical distribution of production per sector, we conclude that lockdowns in the Yangtze Delta (Shanghai, Jiangsu, Zhejiang and Anhui) and the Greater Bay Area are bound to be the costliest. More information on China’s production of goods by province and sector can be found in the?Appendix?based on our proprietary data.

These two manufacturing hubs account for 26% and 12% of China’s industrial production, and the shares of exports are even higher at 36% and 24%. In contrast, the Jing-Jin-Ji region (Beijing, Tianjin and Hebei) only makes up 5% of exports although it is important politically.?

From a sectoral view, the Greater Bay Area is the most vital region for electronics. But the importance of the Yangtze Delta goes beyond electronics with diversified exposure and more than 40% of production share in semiconductors, machine and equipment, and textile. To a lesser extent, the Yangtze Delta also plays a vital role in the production of automobiles, chemicals, medicine and paper. Together with the biggest container port in the world, it explains why the lockdowns in Shanghai have had large spillovers in the global supply chains.

As the world faces higher green inflation while focusing on the energy transition, China has become a more prominent exporter of related products. The Yangtze Delta is home to 63% of solar cell exports from China. The Yangtze Delta and Jing-Jin-Ji region also contribute around 30% of wind turbine exports respectively. This means that any sudden disruption stemming from renewed lockdowns in the regions may jeopardize the global agenda in transiting to a greener economy and/or further increase the cost of continuing with the proposed agenda.?

All in all, China's leading role as a global manufacturing center means that any lockdown that occurs in a major manufacturing and export-oriented will have a spillover effect on the world. This is particularly the case for the Yangtze Delta and the Greater Bay Area.

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